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Discount Futures Brokers and the “Rolling Revolution”

Discount futures brokers have been around since the late 1990s. They’ve been part of a kind of “rolling revolution” in financial trading. The trouble is, this “revolution”, though beneficial to traders and investors in many ways, has encouraged cut-priced (or discounted) services with not just a reduced level of service but also a lower level of professionalism.

The futures market has existed for many years, but these recent changes mean that in place of the traditional investor, investing for the medium to long term, we now have the “trader”, who is looking for quick profits over a period of a few months at most, and often only days.

And what these traders trade is in most cases not the traditional shares or company stock, but options to buy the stock, or the future price of the stock (“futures”), which means no real attachment to the company concerned. They have no interest in its affairs other than how they affect the share price, no concern for the workforce, they’ll never attend the annual meeting to discuss and vote on the future direction of the company, and they’ll hold no stock certificate signed by the company secretary certifying the holder to be the owner of so many shares in the company. And the company may just as easily be based somewhere on the other side of the world as in the trader’s own country.

The internet’s to blame. It has enabled ordinary people to trade in this way, and at a discount, i.e. for cheaper brokerage fees than had been the case previously. Advances in computer capabilities and speed bred impressive advances in software applications. Stock brokers invested in this as they saw the profit potential, and most of them began offering discounted services and promoting themselves as, among other things, discount futures brokers.

The trading platforms that enable you to make your trades instantly without speaking with another human being, the charts and their indicators, giving price histories going back to way back when on thousands of stocks, these are all the result of that massive investment. And they now enable brokers to attract far more business than before by using the increased automation produced by their advanced software programs to offer cut price services.

And while futures are now all the rage, the traditional role of the futures broker has all but disappeared. Brokers have re-invented themselves. The typical transaction now no longer involves the broker advising his client on how he sees the future of a particular market or how the client ought to consider spreading his risk. Even more in decline are pro-active services where the broker actively suggests investments and trades, or even takes over the client’s portfolio to trade as if it were his own. Only the more wealthy even consider paying for these kind of services.

Now what used to be called “execution only” services are king. The broker simply provides access to the information the trader needs in order to make trading decisions, often by technical analysis. More astute traders rely instead on independently obtained data. Real brokerage services have been taken over by “dealers” who make calls to customers to offer help and, more to the point, make sure they are making enough trades and incurring a decent level of brokerage fees.

There are brokers who are straightforward about their fees, and there are others who are more evasive. If you’re opening an account for the first time, or switching your account to another brokerage, then you need to check the fee structure before you sign up. Watch out for hidden fees.

With each broker you consider, ask what their all inclusive “round-turn” rates are. Ask what your transaction costs will be, including any “hidden” fees. If you’re a regular trader then you’re in a position to negotiate fees rather than tamely accept the quoted minimum fees.

By protecting yourself from excessive fees, even from the new breed of discount futures brokers, you can at least more easily profit from the brave new financial trading environment.

And with the right guidance you can make really serious profits.

Just go to our home page and complete the form for your Secrets of Successful Trading.

Philip Gegan