What Is Your Priority? Brokers Or Commissions?
The advent of increased competition and electronic trading has lowered trading commissions for futures contracts to unprecedented low levels. Needless to say, the lower commission structure has had a positive effect on the bottom line for most futures day traders. At one time, commissions were a major expense in trading and it was not unusual to spend considerable time and effort negotiating the lowest possible commission rate. As it stands today, commissions are a relatively minor expense for most day traders.
I contacted several futures brokerages in the past week and queried them about typical round-trip commission charges most clients expect to pay. Round-trip charges are the combination cost of selling and buying a single futures contract. The average cost for a round-trip was somewhere between $4 and $10. While I may be dating myself some this comment, I can remember commission charges well in excess of $40, and sometimes $50 for a round-trip commission on a single futures contract. Increased competition between futures brokerage firms and reduced expenses caused by electronic trading were generally cited as the primary components for the lower rates and the drastic reduction in current commission structure.
With the lower commissions structure that is now in place, day traders can focus on new factors when choosing where to trade. Oddly enough, many of the brokers I spoke with complained that traders are still bickering to obtain the lowest possible commission rate. Of course, all traders want to spend the least amount of money on commissions possible, but it occurs to me that perhaps negotiating a dollar or two on a round-trip commission may be focusing on factors that are peripheral, at best.
With such low rates, I find myself more concerned about the quality of the futures brokerage data feed in performance of their trading platform. These considerations may, in fact, be far more germane to a trader's bottom line than arguing over already inexpensive commission rates. But brokers still claim the primary concern of most traders shopping for a new account is what commission rate can they expect to pay. It seems to me the that we, as traders, have missed the boat when shopping for a quality futures brokerage firm.
Of prime importance to me is the quality of the individual broker with whom I will be dealing. I like a broker who is helpful and has time to answer my questions and is well-versed in the broker side aspects of the futures business. A great broker can be an invaluable asset, especially when problems occur, and in electronic trading problems will occur. As opposed to arguing down that last dollar of commission, I find myself more concerned about my broker's ability to resolve trading issues than minor adjustments in commission structure.
Of even greater concern, at least from my standpoint, is the quality and features of the platform the futures brokerage provides its clients. While there are a great number of quality platforms currently available, there are an equal number of platforms which do not contain the features I require for my style of trading. I always demo a trading platform with the firms live data feed before I commit myself to trading with the firm. A platform which performs poorly, coupled with a slow or a substandard data feed will cost me far more money than the dollar I might potentially save on lower commissions.
Of course, we all need to save money in trading wherever possible, but sometimes other factors than commissions may be determining issues in your profitability. My suggestion is simple; while commission structure is important, there are far more important issues in determining your overall profitability and proper attention to these issues may affect your long-term gains more than the mere dollar you save on a commission.
As a matter of fact, the firm I trade with does not offer the lowest commission structure I have found, but does offer a superior platform, flawless trade execution, and excellent problem resolution. These factors are far more important in my trading than a rock-bottom commission structure. It's something for you to think about.
Questions and Answers
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