Day Trading & Forex Forum

Choice of Broker
There are just a couple of points to be made about choosing the right broker. Firstly, there is no right broker for all investors. A decision in favour of a certain broker basically depends on the following parameters:

• Investor experience (can investment decisions be made independently or is professional consultation necessary?). This determines if a full service broker or a discount broker should be used.
• Service level (investment advice, trading platform, communications, dependability, execution speed, etc.)
• Tradable products (stocks, options, futures, currencies, etc.)
• Trading costs (commissions, account fees, etc.). The higher the trading frequency the more commissions will influence performance.

TRADERS´ Magazine readers are mainly independent traders and generally speaking are not long-term investors, making increased attention to commission costs important and the choice in favour of a discount broker more likely.

That narrows the list of available brokers. But there are still major differences. Not all discount brokers offer all trading products. The minimum account size requirement also varies. It should be determined if short selling is possible, as some brokers don’t offer it.
What order-types are available, does the trading platform appeal, and so on. Asking other traders about their experiences and opinions can also be helpful in making a decision.

As this article demonstrates, commission fees are a very important factor in trading success. Even when the broker fulfils all other requirements, if the fees are too high for the account size and trading style, success will remain elusive. That’s why the importance of order costs cannot be emphasised enough.

Money-Management
The portfolio results listed here have a big influence on Money-Management. A standard rule states that invested capital should never exceed more than 50% of available capital. It has to be weighed if that rule can be followed considering general money management rules, the system’s statistical results, and available capital.

If you choose to strictly follow that rule (which is advisable), then consequently it means a minimum account size of $10,000.00 is needed to achieve optimal performance (broker A only). For broker C, the second best broker in our test, a minimum account size of
$70,000.00 should be available. With broker C a $100,000.00 account is needed based on the results of the model portfolio.

Conclusion
The study clearly shows that broker commissions and account size strongly determine profitability. The level of commission fees is decisive for a trader’s success or failure especially for small accounts, which is often the case for those getting started. Even if the trader follows a good strategy, in the end he will ruin his account and give up in frustration if the wrong broker is used.

An account size of $10,000.00 is the minimum needed for optimal results using the most basic money management rules and the “best” broker in our test.

Brokers offering flat rates are the best choice for accounts of more than $200,000.00.

These are not static limits, but are dependent on the trading system’s total performance. The better the performance the smaller the account requirement. However, a trader must always exercise caution since trading performance is never constant and even the best
systems suffer drawdowns. That’s why successful traders often warn against trading accounts that are too small.

Commissions are a very important criterion for choosing a broker, but by no means the only one. Quality and service also play an important role in the decision making process. The requirement for long-term success, of course, is a proven, robust trading system with plenty of statistical data supporting it, solid money management, and the discipline to trade the concept to the letter.