When it comes to trading small accounts, there’s one cost you need to take into account more than any other: commissions. With some online brokerages charging as much as $14.99 per buy and $14.99 per sell, a $30.00 round turn can really affect profits on smaller accounts.
For this reason I suggest you shop around for all of your services, and at the top of shopping list should be the all important online trading brokerages.
Currently, I’m with Zecco.com and I would give them an A for effort (even though they’ve been steadily raising their commissions from the low, low cost of $0.00 which is where they started out). I’ve never had a problem with customer service when I call and their execution speed (while not up to direct access levels) has been pretty awesome and getting faster and faster everyday. All of this after trade execution nearly came to a standstill during a few NASTY trading days in 2008.
To be fair, nearly all other brokerages experienced the same types of issues as the markets became flood with traders cramming for the exit doors. So there’s that. And needless to say I’ve never had a problem with them since.
The other 3 discount brokerages I know of are:
TradeKing
SogoTrades
Scottrade
To be fair, I only have experience with Scottrade. Though their commissions come in a little high at $7.95 per trade they do offer real time, streaming quotes for free — where as Zecco.com charges extra for a streaming platform. Scottrade also lets you open an account with $500.00 and has actual brick and mortar offices your you can walk into in the real world. However, you still need $2,000.00 to get a margin account because if you don’t have one you’ll have to let funds settle for 3 days otherwise before making a new trade.
This used to bother me a lot — but that’s when my trade lengths were getting shorter and shorter. Now I’m fine with end of day charts and delayed data because that’s how I trade. The only thing I am looking at for when it comes to small or micro accounts is the best free/cheap alternative to get something done that I need to get done in the market.
Given that I will very soon begin a trading challenge each year whereby I take a small $2,000.00 account and try and trade it up to something meaningful using whatever methods I can dream up, those lower commissions will really come in handy.
To give you an example, let’s look at the difference in price between Zecco and Scottrade over 1 year trading a conservative 2 times a month.
Scottrade Trade Commissions
Trades = 24 (2 trades per month x 12 months)
Commissions = $381.60 ($7.95 each buy and $7.95 for each sell = 48 x $7.95)
That’s 19% i need to make on my money just to cover the cost of commissions on my trades. Now, let’s look at Zecco.com or Tradeking.com.
Zecco.com or Tradeking.com Trade Commissions
Trades = 24 (2 trades per month x 12 months)
Commissions = $237.60 ($4.95 each buy and $4.95 for each sell = 48 x $7.95)
At $237.60, (11.88% of total equity) these commissions are over $100.00 less than Scottrades. Not to mention how much they’re below the cost of brokerages that charge $14.95 per trade!
So let’s recap:
When it comes to small accounts you want commissions to be as low as possible because the higher they go the more they eat into your profits and exacerbate your losses. You want to trade as infrequently as possible because active trading means more commissions. And if you can get away with and/or find free alternatives (and you can because you are here at RetailTRADER!) to what some brokerages might make you pay for — then go for it! Why? Because every dollar in your account is another dollar that’s earning interest — that’s why!
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