Finding a broker

Hi all, I've spent the past few months reading books on trading, and doing paper trading based on what info I have access to for free on finviz.com and stockcharts.com.

I'm looking to setup with a broker this year, however I'm not sure in which direction to turn. First of all, I was looking at the best online brokers, one of which seemed to be fidelity.com but they have this message on their portal page:

"This web site is intended to be made available only to individuals in the United States. Nothing on this site shall be considered a solicitation to buy or an offer to sell a security, or any other product or service, to any person in any jurisdiction where such offer, solicitation, purchase or sale would be unlawful under the laws of such jurisdiction and none of the securities, products or services described herein have been authorized to be solicited, offered, purchased or sold outside of the United States of America. By using this site, you consent to the use of cookies which collect information about site visitors. To continue to this site, you must acknowledge that you understand and agree to these terms of use by clicking "I Accept" below."

So I figure ok, so that means I'm going to have to deal with a broker within my own country (UK), however upon finding the relatively small pool of UK brokers, they all seem to get lousy reviews on account of the trading platform, the limited range of what you can trade, exceptionally high fees, stop losses that fail to trigger in time.

Also, I had read that if I'm in the UK and have my broker setup, who can deal in US stocks, this also complicates things in terms of the profitability on account of the fact that US taxation also comes into the picture now, not to mention that I will lose some money on account of the currency conversion.

So can someone advise me on what I can and can't do with regards to choosing a broker, bearing in mind that my currency is currently in GBP? Before I started having to limit my search to UK brokers, my original plan was to trade the stocks within the London Stock Exchange (if there's enough liquidity for swing trading) and trading on the NASDAQ and NYSE, since most of the paper trading I've been doing is based on stocks on those 2 exchanges.

Interactive Brokers sounds right for what you want to trade, plenty of threads on here about them.

Thank you for that recommendation, from what I have read so far today, yes they have a very strong trading platform and will allow me trade the relevant markets that I wish to trade. The only bad point that I've read is that you have to sign up with a minimum trading account of $10,000.

I think best thing I can do to offset that investment is keep at the paper trading until trade choices are at least 60% right consistently and then take the plunge.

Once again, thank you very much for the suggestion.

NewbieDave said:

Thank you for that recommendation, from what I have read so far today, yes they have a very strong trading platform and will allow me trade the relevant markets that I wish to trade. The only bad point that I've read is that you have to sign up with a minimum trading account of $10,000.

I think best thing I can do to offset that investment is keep at the paper trading until trade choices are at least 60% right consistently and then take the plunge.

Once again, thank you very much for the suggestion.

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That you have to deposit $10000 doesn't mean that you'll never see it again. Continue studying, continue practicing, get to a point where you at least consistently control your losses, then to a point where you begin to breakeven. When you begin to make small profits, then give real-money trading a shot. And if you clutch, back off until you determine what the problem is.

There's no hurry. The money doesn't accrue interest, but it's there, waiting. If you chip away at it, then eventually it'll be gone.

Db

NewbieDave said:

Hi all, I've spent the past few months reading books on trading, and doing paper trading based on what info I have access to for free on finviz.com and stockcharts.com.

I'm looking to setup with a broker this year, however I'm not sure in which direction to turn. First of all, I was looking at the best online brokers, one of which seemed to be fidelity.com but they have this message on their portal page:

"This web site is intended to be made available only to individuals in the United States. Nothing on this site shall be considered a solicitation to buy or an offer to sell a security, or any other product or service, to any person in any jurisdiction where such offer, solicitation, purchase or sale would be unlawful under the laws of such jurisdiction and none of the securities, products or services described herein have been authorized to be solicited, offered, purchased or sold outside of the United States of America. By using this site, you consent to the use of cookies which collect information about site visitors. To continue to this site, you must acknowledge that you understand and agree to these terms of use by clicking "I Accept" below."

So I figure ok, so that means I'm going to have to deal with a broker within my own country (UK), however upon finding the relatively small pool of UK brokers, they all seem to get lousy reviews on account of the trading platform, the limited range of what you can trade, exceptionally high fees, stop losses that fail to trigger in time.

Also, I had read that if I'm in the UK and have my broker setup, who can deal in US stocks, this also complicates things in terms of the profitability on account of the fact that US taxation also comes into the picture now, not to mention that I will lose some money on account of the currency conversion.

So can someone advise me on what I can and can't do with regards to choosing a broker, bearing in mind that my currency is currently in GBP? Before I started having to limit my search to UK brokers, my original plan was to trade the stocks within the London Stock Exchange (if there's enough liquidity for swing trading) and trading on the NASDAQ and NYSE, since most of the paper trading I've been doing is based on stocks on those 2 exchanges.

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you are UK resident presumably, in which case US taxation shouldn't come into the equation. You would register with a W8Ben form, which indicates your residency.
the only time any form of taxation that could apply is the taxation of dividends received from US shares. You could be taxed by the US and then when you declare dividends received in the UK you are taxed again.
there is a "double taxation" rule against that, so when you declare your dividends here you can highlight the fact that tax has already been incorrectly applied by the US authorities which is then adjusted for.

with regard to IB, yes they have a 10,000 deposit and also bear in mind their minimum charge for UK stocks is £6. there are other brokers which are cheaper and don't require a 10,000 deposit for UK shares. Iweb is an example, there are others
so if you were intent on trading US shares, I'd choose a different broker for your UK holdings. or of course stick with UK for now until you are confident with your strategy to expand on your markets but I'd be surprised if you really needed to look at US at all given your residency.

none of the brokers platforms are really that outstanding, and neither are IBs. You are there to execute a trade; you shouldn't be using their platform to do any technical analysis from. also worth considering is service. call up IB and you will be waiting for some time for anyone to help, their service is notoriously bad.

Dbphoenix makes a valid point in that your broker should be a consideration only when you know you have a strategy that is sound and is potentially going to give you an edge. But im assuming you have that already.

let me know if you have any questions, doubts and I'll be happy to help. I deal primarily with the UK market (mostly FTSE250 and ETFs), and only very occasionally abroad as there is an abundance of great stocks in the UK

hope this helps

Ahhh excellent, I wasn't sure if the UK market would be adequate, with regards to my strategy, I've been working based on a strategy which I've put together between what I've read, as well as YouTube videos and keeping an eye on the news. The development of that strategy is still a work in progress as I continue studying and applying what I learn.

So far, I have been profiting based on paper investments, although my profits are not yet to the tune of 10% of my investment, a little more than 5%

I'm certainly not going to risk my money yet as like dbphoenix says there's no rush, the profits that I've been getting so far could be freak occurrences and I want to make sure profits are reasonably consistent over the long run, I just wanted to make sure that I have a rough idea of who a good broker would when I become ready. Since you reckon that the UK market does well enough on its own, I would be happy to stick with a broker who I can focus on UK stocks with, so if the US markets aren't a consideration who would you recommend based on access to UK stocks, commissions and service quality?

NewbieDave said:

Ahhh excellent, I wasn't sure if the UK market would be adequate, with regards to my strategy, I've been working based on a strategy which I've put together between what I've read, as well as YouTube videos and keeping an eye on the news. The development of that strategy is still a work in progress as I continue studying and applying what I learn.

So far, I have been profiting based on paper investments, although my profits are not yet to the tune of 10% of my investment, a little more than 5%

I'm certainly not going to risk my money yet as like dbphoenix says there's no rush, the profits that I've been getting so far could be freak occurrences and I want to make sure profits are reasonably consistent over the long run, I just wanted to make sure that I have a rough idea of who a good broker would when I become ready. Since you reckon that the UK market does well enough on its own, I would be happy to stick with a broker who I can focus on UK stocks with, so if the US markets aren't a consideration who would you recommend based on access to UK stocks, commissions and service quality?

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Will you be trading just UK stocks, or will you be looking at ETFs (Exchange Traded Funds) as well?
also, what timescale will you be holding for..holding for days, weeks or months? and lastly, how many trades will you be making in any month, how often will you be trading?

these factors will determine the best broker for your needs...
here's a list of brokers, how much the charges are, as well as account charges

IWeb Sharedealing £5 per trade (£200 account opening)
X-O (Jarvis Investment) £5.95 per trade
The Share Centre 1% per trade (min £7.50, £1.50/mth account fee)
IG Index - £8 per trade (£5 if you trade more than 10 times in a month) (minimum $15 for US)
Saxo Markets £8 per trade (£5 100+/mth) (min $15 for US)
Charles Stanley £10 per trade £20/yr account fee (overseas £20/trade by phone)
Interactive Investor (iii) £10 per trade (£5 10+mth) £20 qtr account fee covers first 2 trades
Motley Fool £10 per trade (£5 10+mth) £20 qtr account fee covers first 2 trades
First Direct £11 per trade (£9 11+/qtr) £10.50/qtr account fee
Hargreaves Lansdown £11.95 per trade (£8.95 for 10+mth, £5.95 for 20+)
Barclays stockbrokers £11.95 per trade (£8.95 for 10+mth, £5.95 for 20+ min £45 for US stocks) £12/qtr inactivity fee
TD Direct £12.50 per trade (£8.95 for 10+mth, £5.95 for 20+)
Selftrade £12.50 per trade (£6 for 100+qtr) £8.75/qtr inactivity

Well I was planning on my hold time being 3-10 days and probably holding no more than 5 positions at a time, so in theory, so trading no more than 15 stocks in a month (in theory).

As for ETFs, no I'm looking at sticking to just stocks.

NewbieDave said:

Well I was planning on my hold time being 3-10 days and probably holding no more than 5 positions at a time, so in theory, so trading no more than 15 stocks in a month (in theory).

As for ETFs, no I'm looking at sticking to just stocks.

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then there is little point in trading in shares, you were looking at the wrong type of broker. take a look at spreadbetting, tax free and far far cheaper.
IG probably have the best range of UK shares to spreadbet, and there's ETX

Isn't spread betting supposed to carry considerably greater risk?

NewbieDave said:

Isn't spread betting supposed to carry considerably greater risk?

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Hi Dave,
Broadly speaking, the level of risk is determined by the trader, as opposed to something that's inherently built in into the trading vehicle. Specifically, I'm referring to the amount of leverage that the trader uses - or doesn't use. If you trade actual shares, then your available leverage could be as little as 4:1 which means that for every £10k worth of shares that you trade, you'll need £2,500 in your brokerage account.

Spread betting will provide much higher leverage multiples to you, which means that you can make huge gains from relatively small price moves. Unfortunately, the flip side of this is also true and many traders end up losing - rather than making - large sums in double quick time. For the most part, that's where the perception that spread betting carries considerably greater risk comes from. However, the choice of how much leverage you use is up to you, your SB broker won't make you use it if you don't want to! If you have well defined risk and money management procedures in place, then spread betting need not be any riskier than any other financial vehicle.
Tim.

timsk said:

Hi Dave,
Broadly speaking, the level of risk is determined by the trader, as opposed to something that's inherently built in into the trading vehicle. Specifically, I'm referring to the amount of leverage that the trader uses - or doesn't use. If you trade actual shares, then your available leverage could be as little as 4:1 which means that for every £10k worth of shares that you trade, you'll need £2,500 in your brokerage account.

Spread betting will provide much higher leverage multiples to you, which means that you can make huge gains from relatively small price moves. Unfortunately, the flip side of this is also true and many traders end up losing - rather than making - large sums in double quick time. For the most part, that's where the perception that spread betting carries considerably greater risk comes from. However, the choice of how much leverage you use is up to you, your SB broker won't make you use it if you don't want to! If you have well defined risk and money management procedures in place, then spread betting need not be any riskier than any other financial vehicle.
Tim.

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Sorry to quibble but this is not unlike saying that trading penny stocks need not be any riskier than trading AAPL and MSFT. I strongly suggest that the OP read what you wrote about SB and CFDs in your stickie to the First Steps Forum.

The focus on taxes is misplaced. Unless one is making money, taxes are never an issue. And few traders make money.

Db

NewbieDave said:

Isn't spread betting supposed to carry considerably greater risk?

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Risk is the 'Inability' to deal with change.


I will suggest you continue to practice till you 'Can deal with Change', consistently.

Hi dbp,

dbphoenix said:

Sorry to quibble but this is not unlike saying that trading penny stocks need not be any riskier than trading AAPL and MSFT. I strongly suggest that the OP read what you wrote about SB and CFDs in your stickie to the First Steps Forum.

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Feel free to quibble as much as you like!


I agree with the inference that trading penny stocks is inherently riskier than trading MSFT and, to a lesser extent, AA PL (due to the latter's volatility). Sorry if I'm being dim, but I'm not clear how or why that negates (if it does) my comment to Dave (the OP) about risk. Perhaps you'd care to elucidate?

dbphoenix said:

The focus on taxes is misplaced. Unless one is making money, taxes are never an issue. And few traders make money.

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No quibble from me on this point - I agree completely.
Tim.

timsk said:

Hi dbp,

Feel free to quibble as much as you like!


I agree with the inference that trading penny stocks is inherently riskier than trading MSFT and, to a lesser extent, AA PL (due to the latter's volatility). Sorry if I'm being dim, but I'm not clear how or why that negates (if it does) my comment to Dave (the OP) about risk. Perhaps you'd care to elucidate?

Tim.

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You say that "if you have well defined risk and money management procedures in place, then spread betting need not be any riskier than any other financial vehicle." But spread betting is quite different from other financial vehicles. For one thing, you begin in the hole. And while it's true that all stock traders begin in the hole, the deeper the hole, the greater the risk. The spread in futures is virtually non-existent, or at least so small that it's not worth bothering about.

Then there is the matter of risk itself, which is not particular to this discussion but which goes on elsewhere and everywhere, and what is said about it is commonly inaccurate. We read "don't risk more than you can afford to lose" but little about the odds of actually losing it. We read about "risk:reward ratios" but little about the odds of price reaching our risk level before it reaches the reward level. So traders decide how much they're willing to "risk", place their trades, and hope, just as they would do stepping up to the roulette table.

Futures are generally considered to be ultra-complicated, totally unsuitable for the beginner as they are too sophisticated and carry the risk of utter ruin. But e-mini contracts enable the beginner to participate without requiring that he risk hundreds or thousands of dollars. Yes, if the trader has no plan and is incapable of cutting his losses short, he will lose a lot of money. But he will lose a lot of money regardless of what he trades; he just may lose it a bit slower. And futures needn't have the large gaps between one trade and the next that penny stocks have. Nor are they subject to huge opening gaps (at least as far as the majors are concerned), which all stocks are subject to.

Futures ceased to be a bogeyman with the advent of intraday streaming data, discount brokers, and instant executions. I wouldn't hesitate to recommend them to the beginner IF he has developed a consistently-profitable trading plan using either your "template" or mine and IF he has nailed down a trade management scheme that is an integral part of his trading plan. If he has neither, it really doesn't matter what he trades: he's going to lose.

Db

dbphoenix said:

You say that "if you have well defined risk and money management procedures in place, then spread betting need not be any riskier than any other financial vehicle." But spread betting is quite different from other financial vehicles. . .

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Hi dbp,
Thanks for the clarity - all very good points - well made as usual.

For me, the difference in our posts highlights the difficulties in trying to address comments and questions made by new members and novice traders. Rarely is there an absolute black and white statement about which everyone agrees. You may think otherwise but, in spite of your comments, I don't feel that my explanation about leverage and associated risk to the OP was misleading or poor advice. Certainly, spread betting has many limitations and may well be an inappropriate vehicle for him to trade but, equally, as Malaguti pointed out, it does have its advantages and may tick many of his boxes. All of which highlights that there is no one market, instrument or financial vehicle that's head and shoulders above all others that all traders would do well to adopt. It's a case of horses for courses etc.
Tim.

timsk said:

Hi dbp,
Thanks for the clarity - all very good points - well made as usual.

For me, the difference in our posts highlights the difficulties in trying to address comments and questions made by new members and novice traders. Rarely is there an absolute black and white statement about which everyone agrees. You may think otherwise but, in spite of your comments, I don't feel that my explanation about leverage and associated risk to the OP was misleading or poor advice. Certainly, spread betting has many limitations and may well be an inappropriate vehicle for him to trade but, equally, as Malaguti pointed out, it does have its advantages and may tick many of his boxes. All of which highlights that there is no one market, instrument or financial vehicle that's head and shoulders above all others that all traders would do well to adopt. It's a case of horses for courses etc.
Tim.

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Well, you did say "elucidate" rather than "elaborate", and the latter is more likely what I did. However, your explanation was neither poor nor misleading, but compared to the extensive explanation you provide in the stickie, it was relatively incomplete.

It is a pity that newcomers and beginners don't read the stickies. As an educational resource, I haven't found anything on any other forum that even approaches them. You mentioned something about a book. I hope that these stickies form the basis of it. With proper formatting, illustrations, and self-referential hotlinks (assuming it's available in e-book form), it would knock the crap that's listed on Amazon off the table.

For an example of what I mean, compare an original copy of Wyckoff's Studies in Tape Reading with the reformatted Day Trader's Bible.

Db

dbphoenix said:

Well, you did say "elucidate" rather than "elaborate", and the latter is more likely what I did. However, your explanation was neither poor nor misleading, but compared to the extensive explanation you provide in the stickie, it was relatively incomplete.

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Very true, and I bow to your superior command of language - I ought to have said 'elaborate' rather than 'elucidate'!

dbphoenix said:

It is a pity that newcomers and beginners don't read the stickies. As an educational resource, I haven't found anything on any other forum that even approaches them. You mentioned something about a book. I hope that these stickies form the basis of it. With proper formatting, illustrations, and self-referential hotlinks (assuming it's available in e-book form), it would knock the crap that's listed on Amazon off the table.

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Thanks for the comment about the Stickies - I'm surprised you've read them, lol! The book does pretty much as you describe, although I expect it falls short of yours and most members' expectations on many fronts, as it's next to impossible to write a beginners guide which pleases everyone. All being well, Sharky will publish it here on T2W in the near future.
Tim.

timsk said:

Very true, and I bow to your superior command of language - I ought to have said 'elaborate' rather than 'elucidate'!

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"Elucidate" was correct. Elaboration doesn't always clarify. Look at government publications.

Thanks for the comment about the Stickies - I'm surprised you've read them, lol! The book does pretty much as you describe, although I expect it falls short of yours and most members' expectations on many fronts, as it's next to impossible to write a beginners guide which pleases everyone. All being well, Sharky will publish it here on T2W in the near future.
Tim.

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I don't know that "pleasing" need be the goal, as long as it's true. There's so much pie-in-the-sky in what's written for beginners.

Db

Thanks for clearing the situation up some, when I do start risking real money, I don't think it'll be with spread betting, I'm not ready to be dealing with that level of risk yet, and I don't plan on trading on margin when the time comes.

In the short-term, I'll go through the stickies as suggested, and look into paper trading platforms to test my risk control strategy, as its one thing for me to make notes and say yes, I correctly predicted stock x would go up, however with not seeing all the stock moves within the space of a day, I'm not seeing if my stop losses might result in me getting stopped out before I reach my price target.