The trading platforms at the typical online discount brokerage provide a simple interface for buying and selling stocks. Retail investors who have used these platforms are well aware of their limitations – the tools, market data and speed of trade execution are geared to the buy-and-hold or occasional trader.
These platforms may be free, but you get what you pay for. For active stock traders and even some occasional traders, they do not fit the bill.
Active traders, investors who buy and sell exchange-traded equities many times a day, have a different set of needs. Their ideal discount broker would provide many, if not all, of the following features:
- Varied account types. Some discounters don’t have registered accounts. Others have accounts that can’t hold multiple currencies.
- Reasonable account minimums. Some firms set high minimums to discourage small traders.
- Low commissions and fees. Pennies count when you execute dozens of trades a day. Investors pay less if the broker offers flexible commission structures or if tickets for separate orders can be combined within certain time frames.
- Access to a practice account so trading skills can be honed without losing real capital.
- A choice of user-friendly trading platforms with customizable information and screen layout.
- Broad choice of market information including real-time streaming and charts for all exchanges of interest.
- Pick-and-choose market data packages so only the data of interest is purchased.
- Advanced analytical tools for fundamental and technical analysis.
- Educational resources.
- Ability to choose how your order is routed. Alternative trading systems available in Canada besides the TSX include Alpha, Chi-X, Omega and Pure, and several others for U.S. market orders.
- Direct Market Access for qualified individuals. A DMA system allows traders to send orders directly to an exchange, bypassing the usual review by a broker. Traders have better control of trades and potentially higher profits.
- Fast execution of trades.
- Easy electronic funds transfer between a trader’s bank and trading accounts.
- Competitive interest rates paid on outstanding cash balances in a trading account.
- Easy account management and understandable, informative statements.
- Knowledgeable staff who respond promptly to inquiries.
- Mobile trading capability for the user’s smartphone.
In Canada, discount brokers from two major banks and three non-banks seriously court active retail traders.
TD Waterhouse offers two Active Trader platforms that clients can customize to view in Chinese as well as English and French. Fees are waived and commissions are a flat $7 for investors who perform at least 150 trades per quarter. A dedicated team supports active traders, which is needed given TD Waterhouse’s large and varied client base. This broker ranked eighth in The Globe and Mail’s most recent discount broker survey.
Scotia iTRADE has a similar offering. Two platforms are geared to active traders. The threshold for flat $6.99 trading commissions and no platform fees is 150 trades per quarter. A dedicated customer service team serves active traders. Scotia iTRADE placed fifth in The Globe’s discount broker survey.
Virtual Brokers, a private firm in business just two years, ranked second in The Globe’s survey and was first in the innovation category. This firm is hungry for business. It gives clients a choice of three trading platforms at no cost. Clients must pay for market data unless they do at least 150 trades a quarter. Pricing is aggressive, with commissions as low as 99 cents a trade. The account size minimum is $1,000.
Questrade, another privately owned Canadian broker, was launched in 1999. It caters to both buy-and-hold investors and active traders and has three trading platforms to choose from. The minimum account size is $1,000. Commissions can be as low as $4.95 for a stock trade. The firm has a reputation for low commissions and fees, but has been out-hustled on price and trading features by Virtual Brokers and Interactive Brokers. Questrade ranked eleventh out of 13 in the aforementioned broker survey.
Interactive Brokers was not ranked in The Globe’s discount broker survey because it does not have registered accounts, yet it has strengths that active traders want. Its parent firm has been in business for 35 years. It offers trading in 19 countries, and assets can be held in multiple currencies. Commissions are as low as $1 per trade and several trading platforms are offered. The firm targets professional and active traders and requires a $10,000 account minimum and monthly commission of at least $10.
If active trading is in your future, shop carefully before deciding on a discount broker for your trading needs. The right choice could make the difference between a profitable trading future and a short career.
Gail Bebee is the author of No Hype-The Straight Goods on Investing Your Money.