This article is focused on a very important part of your trading - broker (brokerage firms).
Who is the Broker? It is the connection between your commercial decision and its implementation on a particular exchange.
- your trading system signals the time to buy or sell,
- on the basis of this signal, you send your business orders to the broker
- Broker will block a Margin on your account. Your order is confirmed and implemented. For the implementation of the order you pay a commission to him.
The procedure for buying anything, what your broker can trade - shares, options, bonds, commodities, Forex, etc. is actually very simple. In addition to the order for purchase/sale, you send your broker also the orders where to set Stop Loss and Profit Target (if you want to use them). SL and PT are executed only in case that the lost or earned amount of money equals to the ones defined through the orders.
There are two basic ways of trading through Brokerage firms:
- The first group of brokers execute orders through their own business tools. The important thing is that you enter orders by phone, email, fax, etc.. Orders must be in a standardized form, and any mistake, when entering a written order, may result in the non-execution of your request. Also the execution of your orders is slightly delayed. Another disadvantage is that, the broker charges much higher commissions for such services.
- The second type of services offered by Broker, is an electronic sending and execution of your trading orders. The Broker will provide you with an electronic trading platform through which you enter trading orders. Their execution is immediate. This is the main advantage of electronic trading (eTrading). Here should be also mentioned that such services are much cheaper.
The difference between the Brokers, respectively the types of services is about the same as the payment of bills personally and via internet banking. The advantage of the first type of brokers is that you can get advices and personal approach. The broker can notice you e.g. that you are going against the market, give you some recommendations and so on.
The first type of services offered by brokers has been on the market since trading began. In those times there wasn't any electronic platform, which could execute the purchase of a selected share or commodity. The only way was to send the orders to a brokerage company. The Broker had a parquet trader on the exchange who executed the order for you. It used to be called "Open outcry". Such a "ferocious" giving and executing orders, to buy or sell, you may know well from the television.
At present there is only a couple of commodities, where you can still meet the parquet traders. Now it is not necessary to be present directly on the parquet to trade. Brokerage firms prefer to carry out purchases or sales electronically, according to your requirements.
The decision, whether you leave a purchase of the underlying assets to your broker, or you can realize it yourself through the electronic platform is the main difference in execution time and expensives of your business decisions. The electronic trading is faster and cheaper, as well.
If you are a newcomer to the trading and you do not have enough experience, it is probably more advantageous for you to use the personal contact with the broker. You can thus avoid some mistakes and risky decisions when entering orders. If you are already an experienced trader, it would be better to switch to the use of electronic trading platforms, where your orders will be executed immediately and cheaply.
There is a lot of Brokerage firms.
Here are examples of some brokerage companies:
Brokerage companies also use to offer a possibility to open a Demo account. So you can try market trading without any real money risking and you can get some valuable experience.
Note: Choosing the right brokerage firm is one of the absolutely most important decisions in trading. Primarily you need to decide what you want to trade - shares, options, bonds, commodities, Forex, ETF, etc.. Not every broker can trade everything. Some are specialized to a particular group of assets or an exchange.
While deciding, consider well the price list of services offered, speed of execution of client's orders and fair-dealing of the broker (i.e. read some discussion forums). You can also pay attention to the awards the broker obtained etc..
Pay attention to the views of people who have actual experience with the broker and to the fact how the broker is evaluated by professional companies. Such professional evaluation can ideally serve us as a Rating on the quality of Broker's services.