Day Trading Guide – Chapter 11: Costs of a direct access broker

The majority of us are used to online brokers who charge between $5 to $30 commissions per transaction. There are also cases where some brokers do not charge their clients any commission all. This is because they only allow you to place market orders and they will earn money from your trade. Nevertheless, the quality of service will always be commensurate with what you pay. At times, at first glance, the commission rate may actually seem lower but when you take into consideration the hidden costs, you might find that you’ll be paying more than you first thought.

Even then, the commission that is paid out is pointless if the level of transaction is of low quality. You should always look at the quality of the transaction rather than the commission that is paid. Online account brokers normally charges you a per transaction fee or a monthly fee. This is how brokerage firms earn their money. Therefore don’t worry that your broker makes money from you by charging you these fees. At the same time, do not blindly trust your broker as well. It is highly likely that your broker will recommend trades that will earn him some money too and you have to be conscious of how they charge before opening an account with them.

Online trading is mainly about volume trading. Regardless of the trade margin, when you decide to do a trade, do it quickly as your broker has many other clients to attend too and you want to get your order executed quickly. Remember while you are spotting a trend, numerous other traders are also doing the same thing. In most cases, your broker has to deal with an influx of orders at around the same time.

Another way which you can consider getting your trade done is through an automated system. In fact this is an indispensible tool for day trading as well as for position trading. The crucial factors to consider is to see how fast you can receive updates about the market situation and how fast your can alter your position.

Finally, you must always check what is the minimum balance you must maintain in your account and the access level that you possess to your money. Always check out the fine print and know how your broker is making his money for the services he provides you with. You need to be aware of this situation before you can really take advantage of the cost benefits offered by online trading.