Brokers are different and unique in terms of commissions, choice of investments, research and more. To choose a broker, one has to understand what type of investor he is.
Active options trader
An active options trader is one who trades regularly. As such, he is well versed with the variety of option strategies. The active traders needs a broker who:
- Provides reasonable commissions
- Is able to advise on margin requirements
- Executes complex orders quickly
- Level 2 quotes. Level 2 data is current bids and offers by market makers in a specified security. Some traders believe that it gives them the edge in trading.
Long term investor
The long term investor is not worried about short term market fluctuations. He looks for fundamentally sound companies which are trading below its intrinsic value. Then, he may USE LEAPS as a tool to capture any upside in the stock’s appreciation. The long term investor will need a broker who:
- Provides research information
- Is able to execute orders quickly
- Provides reasonable commissions
- Is able to advise on margin requirements
Beginner trader
A beginner trader is one who has just been introduced to options trading. The beginner options trader should look for a broker who :
- Provides educational information
- Provides customer service
- Quality and speedy execution
- Provides reasonable commissions
Depending on what type of trader or investor, choose the broker that has at least the above attributes that can help you on your options trading journey.
Aside from identifying the type of investor and trader that you are, we have a list of other requirements that will aid you in finding the best broker for your personal trading style.
- Do not accept payment for order flow. The brokerage firm should not sell order flow to other market makers on a certain exchange and is able to get you the national best bid and offer.
- National best bid and offer. The brokerage firm is able to get the trader the national best bid and order. This results in narrower bid and ask spreads.
- Mobile and web based. The brokerage firm allows you to submit orders to electronically without any installation of software as installation of software will slow down trade execution.
- Automatic trading tools. The brokerage firm provides automated trading tools such as automatic stop loss orders, contingent orders etc.
- Spreads order execution. A trader is able to execute spreads electronically.
- Live streaming charts and quotes. A trader is able to access live quotes and charts provided by the brokerage firm.
- Tier 1 system reliability. The brokerage firm has a tier 1 system reliability which minimises the risk of connectivity lapses.
- Financial stability.
Do remember that you can always check with your broker on the requirements above.
Read:
Types of orders that option traders can use
Understand The Terminology Of Options Transactions