Saturday, January 16, 2010

A Discussion About Brokerages

I wanted to take a few mintues to talk about brokerages.  Everybody's using at least one, and many people use what are termed "discount brokerages."  I'm talking about brokerages where trading is done primarily online, without broker assistance, and trades are usually less than $15. 

I currently use two brokerages for my three accounts.  I have a cash account with Scottrade, an IRA with Scottrade, and a cash trading account with Think or Swim.  I have used Schwab in a limited basis, but these two I have the most familiarity with.

Scottrade is an excellent brokerage for someone looking for a straightforward, easy to use system.  They have good customer service (I always get email responses within about 15 min), and they are cheap.  Trades are $7.  There is no fees on my IRA, which I appreciate.  They are a little light on features, especially details about your cash, positions, etc.  They do not offer dividend re-investment on stock positions.  Another issue is idle cash.  This doesn't come into play too much currently because rates are so low, but in more "normal" times, this is an issue.  Schwab allows you to sweep money directly into a money market mutual fund, and I believe Etrade does as well.  They can do this because they are banks and offer these funds.  With Scottrade, you don't have that feature.  You can buy into these funds, like Fidelity Cash Reserves, or Schwab's fund, but you have to pay for the mutual fund trade.  For some reason, mutual fund trades are realatively expensive at Scottrade (they are $17), so $17 in, $17 out just to move your money around.  Overall, I'd recommend Scottrade to beginners or anyone looking to just trade.  This works fine for me because I'm constantly monitoring the market and market-related sites, so I get my research and information elsewhere, and use Scottrade strictly to trade.

Think or Swim is truly an innovative product.  I haven't used all the brokerages out there, but I can guarantee you Think or Swim is doing things that no other brokerage does.  There software has so many features, I couldn't begin to use all of them.  They have a software program that you download and log directly into.  You can also use web-based trading, and there is a nice application for your iphone as well.  Think or Swim is made for option traders, but it can handle so much more.  I'm a stock trader for the most part, but love the features they have for stocks, options, forex, etc.  Its all there.  You can pay commissions on a flat-fee basis ($9.95) or a per-share basis ($.015/share with a $5 minimum).  At Think or Swim, I end up paying $5 per trade for stocks.  Pretty dang good.  As for idle cash, you can move it into one of the big funds like I mentioned before, but Think or Swim has 3 free mutual fund trades per month, so you're set there.  The have other interesting features like live CNBC TV feed (even though I'm not a big fan of CNBC, I wish they'd have Bloomberg too).  They also have a live feed of someone they call the "Shadow Trader" which is this guy that follows the market and executes trades and broadcasts everything.  You can trade right along with him.  They also have live webcasts and tutorials.  Also, on their website, they have a big area that educates you about options trading.  All free.  I could go on and on about this brokerage.

In closing, both brokerages I use serve a good purpose for me.  I'd be interested to hear what other people use and what they think about theirs.  Please comment if you feel like it.  Also, if you're thinking about switching brokerages or want more info about either of these, feel free to email me as well.

If you'd like to open an account with one of these, please let me know. They have refer-a-friend programs.

I'll look forward to any discussion on this. 



Arohan said...

I use Fidelity and love the service. Never a problem and the customer service is top notch.

Michael said...

Fidelity is definitely known as one of the best. I guess the quesiton may come down to this: What matters more to you in a brokerage, 1) Features and Customer Service, or 2) Commissions, Fees and Overall Costs?

Personally I like a good combination of low costs and good customer service, but don't care much about research and analysis. I do most of that on my own.

Thanks for the comment.