The Ins and Outs of Online Brokers
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July 12, 2006
The brokerage industry has changed a lot over recent years. During the late 1990s, as the tech sector boomed and a more and more investors turned to online trading rather than traditional firms, the number of Web-based brokerages mushroomed. However, during the ensuing bear market, declining trading volumes forced many players to either close up shop or consolidate with larger rivals. Long gone are such names as Stockwalk.com, Freetrade.com, and Mr. Stock.
Yet, while the number of online brokers is diminishing, the number and quality of online tools and resources has not. On the one hand, competition for investor accounts has been aggressive and a price war has drastically reduced the cost of trading. Commissions within the industry are clustered tightly within a relatively narrow range. For example, options traders can expect to pay between $7.95 and $12.95 a contract for online orders. Online trading has never been so cheap.
Technology has also improved. Most discount brokerage firms today offer Web-based trading capabilities or standalone trading platforms. Importantly, many firms offer free trading demos, which can prove to be an easy way to test-drive the firm’s software and services before opening and funding a new account. Products and services vary, but most firms today offer free real-time quotes, news, charting, and the ability to enter options orders online.
In addition, when evaluating a firm, another factor to consider is that some brokerage firms provide a wide range of services including mutual fund sales, credit cards, and research. Others focus on providing low cost trading instead. Choosing between a full service and a no frills broker is one of the most important decision traders will face. The best choice often depends on whether the customer needs regular assistance and research, or if they simply want the firm to execute orders instead.
The Optionetics Broker Review section is designed to provide an in-depth look at the key players in the online industry, with a focus on those firms that specialize in options trading. We provide information and profiles on a dozen online trading firms. Within the Broker Review section, visitors can find specific information pertaining to each broker, including their commission costs, online trading tools, and options trading capabilities.
As a rule, we are required to remain broker neutral and not recommend the services of any one online broker over another. Instead, we periodically review each firm based on specific factors including options trading usefulness, options trading costs, and the ability to execute complex options trades online. These rankings can be found in the Broker Review section at Optionetics.com and are designed to help new as well as seasoned traders evaluate and select the brokerage firm that best fits their trading needs.
Frederic Ruffy
Senior Writer & Index Strategist
Optionetics.com ~ Your Options Education Site
Visit Fred Ruffy’s Forum
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