If you’re looking for a broker to trade futures you’re not exactly short of options, the choice of brokers is endless and seems to get ever more complicated as the years go by.
Just a few years ago online brokers fell into one of two camps, full service and discount. But now there’s a new kid on the block, deep discount brokers.
So what’s the difference between all these different kinds of brokers, and which one should you choose? In this article we’ll take a look at all the different kinds of brokers and try to recommend the best broker for you and your specific circumstances.
Before we get into the nitty gritty I should point out that choosing a broker solely on price is false economy. Brokers are cheap for a reason and it will end up costing you more in the long run. It’s much better to think about what services you actually require and then find a broker that fits the bill.
Full Service Brokers
Full service brokers as their name would suggest offer much more than just stock trades. Full service brokers typically offer a range of financial services which can include online banking, retirement planning, investment management and even estate management.
You will of course pay handsomely for this level of service, but it can be worth it if you’ve got a large account to manage and are busy with other commitments like running a business or even playing golf.
Recommended for: High net worth individuals with extensive assets who don’t have time or have no inclination to manage their own investment account.
Not Recommended for: Beginners with limited funds and experienced traders who are looking to manage their own investments.
Discount brokers have evolved over the past few years to become much more than an execution only service. There’s a large number of investors that want a little more than simply being able to place an order, but don’t necessarily require the level of support that a full service broker offers.
Most discount brokers now offer some form of investment advice from basic research to help building a balanced portfolio. These resources are typically available online but if you have a larger account further services can be offered by your account manager.
Discount brokers cover the middle ground, they cost less than full service brokers but offer significantly less specialized services. They’re the most popular kind of broker you’ll find on the internet today, proof that many investors find the balance of services they offer to be more than adequate.
Recommended for: Beginners and experienced traders with small to medium sized accounts that want to manage their own investment affairs but would still like access to training and support as and when it’s required.
Not Recommended for: Serious investors and day traders who trade several times a day and have no requirement for investment advice or education.
This is the newest type of broker, in some ways they resemble the original discount brokers of five years ago. They typically offer the bare essentials without any bells and whistles.
Designed for professionals who use third party data and research tools, their platforms may be simple but they’re bullet proof and offer excellent execution speed.
Recommended for: Serious investors and day traders who trade several times a day and have no requirement for investment advice or education.
Not Recommended for: Beginners or those with limited funds, this type of broker expects you to trade on volume to get preferential pricing.
The main thing to take away from this is that you shouldn’t choose a broker based purely on price. The quality of their trading platform and the level of service they offer are far more important factors.
For instance if you’re a beginner you’d be foolish to choose a deep discount broker simply because you won’t benefit from any training and receive limited support. These services far outweigh the small amount you’d save in commissions in the long term and you’ll be a much better trader because of it.