The discount futures broker is a relative newcomer to the financial trading scene. He came along in the early 1990s, when computers were on the march into more and more homes and offices, and were beginning to be linked together through the internet. Information technology was in the ascendant, and everyone had access to as much information as they wanted at the click of a mouse button, so it was going to be easy for us to use that development to trade successfully on the futures markets. Or was it?
Could the discount futures broker really help the average newcomer to financial trading make money on the stock market – something that the regular futures broker had been doing for many years? Let’s see . . .
The typical level of service provided by a discount broker is the old “execution only” advice, which was the cheapest option provided by regular brokers to clients who could not or would not pay the price of their higher level services.
With all the information easily available through the internet, and access to the stock market through the broker’s trading platform, the ordinary person could take a position on the future trend of the price in any stock or commodity, and trade accordingly.
This development, though giving us the freedom to try and increase our wealth through financial trading, invited people who could not afford to lose money, to place themselves in a position where they were in grave danger of doing just that. And in too many cases, lose money they did.
Contrast that with the situation before discount brokers came along. Regular brokers offered a range of services, depending on what the client could afford. At the top end the client’s portfolio was traded direct by the broker as if it were his own. At the bottom end the broker provided advice only when asked for it by the client.
Whatever level of service the client chose, the broker was always there with advice and information. Standards of service were generally high, and as a result clients enjoyed a much higher level of success than, generally speaking, they do now.
It was always treated strictly as a business, where the typical objectives were security of the client’s money in non-risky investments that would yield a reasonable return, with perhaps sometimes a small part of the portfolio placed in a higher-risk market with the potential for greater returns.
Now, with thousands of self-styled financial traders having come onto the scene (and frequently left it before long, poorer rather than richer) with a get-rich-quick mentality, risks are commonly taken that never would have been if the broker had been there to guide the way with a stock market trading strategy.
The truth is that the higher the level of service the client gets from his broker, the more likely he is to survive in the marketplace, and in most cases obtain steady, if not spectacular, returns on his capital. The regular futures broker comes in way ahead of the discount futures broker. The fees that have to be paid for this higher level of success are well worth it. If the newcomer to financial trading cannot afford to pay fees for advice from his futures broker, or for guidance from a recognised successful financial trader, then he really should wait until he can, and not throw his money away.
Philip Gegan
