I remember how, just 14 short years ago, I had the dream to become a futures trader, but very little knowledge to back up my enthusiasm and passion. I had traded shares, of course, but that had simply involved ringing up the local broker, chatting with him about what was hot and what was not, and then placing an order through him for the requisite number of shares. When I needed to buy something, I’d give him a call and sell some, hopefully at a profit.
But things were beginning to change. Online discount brokerages were gaining traction, and I soon realized that I needed to choose one of those. I wanted to avoid the middleman, I wanted to be self-directed, and I wanted to keep my costs down.
In those days, the online brokerages merely automated their earlier process of taking telephone calls. So you would submit your order online and it would be manually picked up by one of the brokers who submitted it to the exchange for execution by a trader in the “pit”. It was faster than before, but still took several minutes – an eternity for a day trader.
How things have changed!
Now the best brokers offer a sophisticated “trading platform” which gives you, the home-based retail trader, the same sophisticated facilities and services that used to be the exclusive domain of trading professionals. When you submit an order online, there is no intermediary required. It is flashed instantly to the exchange and executed immediately without human intervention. The trading pits are still there, but they are increasingly being replaced by electronic marketplaces.
Back then, different brokerages specialised in shares, options, futures or Forex, but nowadays a single brokerage will handle it all. They used to be restricted to their domestic market, but now they are connected to the world. It is easy for me, living in Australia, to trade commodities in London through my US broker.
So choosing your broker has become a different equation to what it was just a decade ago. Then it was a struggle to find one that supported the products you wanted to trade and the style of trading you wanted to do. Now most good brokerages meet your basic requirements, and you are looking for an excellent trading platform, a competitive fee structure, financial stability, efficient execution and good customer service.
The trading platform is a significant form of differentiation between competitive brokers. As well as the ability to enter orders, you want sophisticated charting capabilities, financial news services, efficient account reporting and a host of other value adding features.
Despite the wider choice, or perhaps because of it, choosing a broker is still a difficult decision for a beginning trader. A good way of getting a really good look at the way top brokerage companies stack up against one another is to read an authoritative independent review (I have suggested one good source in the video link at the end of this article). Furthermore, most brokers provide a free demonstration account to assist your evaluation.
If you are an international trader, you do not need to be limited to brokers in your own country. With the increasing internationalization of trading, you should focus on working with the broker who offers the best facilities and prices for the kind of trading you will be undertaking, regardless of country of origin. At various times over the last dozen years, I have traded from New Zealand, the UAE and Australia, always working through my U.S. broker.
Once you have researched the competitive websites and settled on your broker of choice, the next stage is to open a trading account. It is not difficult.
Just like opening a bank account, it takes a bit of time and you do have to be prepared to sign a lot of paperwork. The brokerages are highly regulated – as you would wish – and they have to make sure that you fully understand and accept the risks involved in trading activities. Furthermore, in these days of heightened security concerns, the brokerages are obliged to “get to know” their client to avoid money-laundering and other illegal activities.
The good news is that the paperwork can be completed online, so it is a relatively speedy process. You may need to scan some documents (for example, your passport or a utility bill in your name) and transmit them with the application.
When the application is accepted, you are notified by e-mail and provided with account login details. You can log in to your account and look around, but you will not be able to trade until the account is funded.
Funding is simple. You can normally deposit and withdraw funds with an electronic bank transfer, even if you are in a different country. You can also transfer funds from another broker. A simple online request (with the appropriate security protection) can initiate a funds transfer, anywhere in the world.
Once the account is funded, you are ready for action. As you buy and sell commodities, you will see your account balance adjusted in real-time to reflect your current financial position. You can request detailed trading reports covering days, weeks, months or a full financial year. (This makes the accounting side of your trading business very simple.)
In the video I introduce typical facilities provided by a brokerage, using my own broker as an example. My choice of broker was guided by the fact that they consistently rate highly in comparative surveys, they have a very competitive fee structure, and I have found their customer service good. I am comfortable with my choice, but I know that other top-flight companies are equally competitive.