Direct Access Brokers:
Okay, I’m going to talk a little bit about Direct Access Brokers. Direct Access Brokers are geared towards active traders. Most of the time with Direct Access Brokers you have the ability to trade per share, and that’s kind of good for active traders because you can piece in and out of your positions if you want. And normally the commission charges for these direct access brokers are based on a per share basis. So, for instance, you might pay half a cent a share, a third a cent a share, or even less depending upon how much volume you do and if you get any rebates or not.
Now, in another blog post I talked about conventional brokers. Conventional brokers generally do not allow you to capture the liquidity rebates. So, I guess I should do a blog post on liquidity rebates, but basically if you add liquidity to a lot of exchanges they give you a little bit of money back in rebate form for adding that liquidity. So, if you place your order between the bid and the ask and hope that it gets hit or wait for it to get hit, you get a little bit of benefit from that from a lot of direct access brokers. Depending, of course, on the plan that you choose with them.
Another thing about direct access brokers is that they are usually negotiable as far as their fees go. So the more you trade the lower they are willing to go on your commissions. Another advantage of direct access brokers is that there is a lot of third party software available. There’s a whole industry of third party softwares that are built around the direct access broker industry. So it’s very easy for you to customize your platform and to get in a lot of order types or charting, different aspects of trading that you wouldn’t be able to get easily, or maybe wouldn’t be able to get at all with a conventional broker.
So you generally have a lot better control of your orders and you have a lot better view of what’s going on. You have a better view of the market, you have a better view of where your order stands in the market, you have a better view of when you actually make the trade and most of these direct access broker softwares are either based off of institutional software or even used by institutional traders. So you’re just dealing on a more sophisticated level when you use a direct access broker.