How to Pick a Broker

The broker you select depends on the level of service you need. An experienced trader may get along well with a discount brokerage firm that merely executes orders at low commission rates whereas a beginning trader needing more help may be willing to pay higher commissions for the services of a full-service brokerage. There is no single, best answer to which broker is the best because there are many different types of traders and brokers.

Like any profession, there are differing degrees of quality in futures brokers and brokerage firms. Obviously, your first goal in selecting a brokerage firm should be finding a firm that is reputable. Your personal broker within that firm is like your employee because he/she will be working for you and you will be paying him/her. So you may want to interview them just as if you were hiring someone for a position.

A broker should be honest and have your best interests in mind – not a “churn and burn” pitch man who racks up big commission fees by cajoling you into trading all kinds of markets. Sometimes traders find it hard to blame themselves for unsuccessful trades, and the broker is an easy scapegoat. Certainly, there are a few “bad eggs” in the brokerage community, just as there are in every industry. However, the vast majority of futures brokers are honest and hard-working individuals who do have your best interests in mind when it comes to trading.

No matter whom you select as a broker, you have to take ultimate responsibility for your own trading decisions. At the same time, it is not an exaggeration to say that the ultimate success or failure of some traders lies in the hands of their brokers.

Search Tips

• Decide what you want from a broker before you begin your search. If you trade electronically and only need fast order executions at low cost and an accurate accounting of your trades, a discount brokerage may be the best for you. If you need price quotes, background research and other types of information to make a decision and need to have help in framing orders, you should look for a full-service brokerage firm, even though you will have to pay more in commissions. If the broker helps you get into profitable positions, they are well worth the fees they charge.
   

• If you have the money but lack the time or knowledge to trade your own account, one aspect of your search may be to find out whether the brokerage firm has money managers or trading systems that can trade an account for you. You may even want to have one account traded by a professional and another account that you trade yourself as one way to diversify your trading portfolio or to see how your trading skills compare with an expert’s.
   

• Less-experienced traders will probably want to avoid the overly aggressive broker, who can make trading an intimidating experience, especially since many newer traders are often still learning the terminology and may be confused by sometimes-hard-to-understand trading concepts. Find a broker who can talk to you on your terms comfortably.
   

• As an individual trader, you and not your broker should always be in control of your trading account and your trading decisions, even if you are inexperienced. If your broker gives you recommendations, you can certainly act upon them. But it’s your money, and you should control your trading decisions. Helpful is one thing, pushy is another. Find a broker who is compatible with your style of thinking and trading – one who will answer your questions and work hard to get good fills for you if you are not trading electronically but who will not question why you want to make a particular trade or give you his opinion on a trade.
   

• Having made the case for making your own decisions and controlling your own trading, keep in mind that many brokers do their own research and provide their information to customers, including trading opportunities. This type of research may be as high in quality as any available, so don’t rule out using information from brokers or advisors in making your trading decisions or relying on their expertise. They are usually in a better position to analyze markets than you are.
   

• Check out any brokerage firm or individual broker by contacting the National Futures Association (www.nfa.futures.org) and using its “BASIC” system, which performs searches of brokerage firms or individual brokers to find out if they have had any infractions levied against them by the NFA. The Commodity Futures Trading Commission (www.cftc.gov) also has an informative website that can help size up a new broker or brokerage firm.

1. What Is a Good Trading Instrument?
2. Trading Equities
3. Trading Futures
4. The Role of an Exchange
5. The Role of the Brokerage Firm
6. The Role of the Regulator
7. How to Pick a Broker
8. How to Place Orders

Main Trading Resources Section