It is not surprising active traders are highly coveted clients every online broker wants. These seasoned traders require far less handholding than new investors, and generate much more revenue for brokers each year. The question is, though: How many trades (buys or sells) must one make to be considered an “active trader”?
After speaking with numerous brokerage executives, traders, and industry experts, there is really no definitive answer because every broker has a different number based on his/her offerings and business costs. In fact, the term “active trader” has become so loosely used in the marketing and branding environments that niche brokers such as Lightspeed use the term, “hyperactive trader” to distinguish between the two.
Published by Blain Reinkensmeyer on Monday, February 16th, 2015 .
Here at StockBrokers.com, we have no problem setting industry standards, and thus will define both from our perspective. We regard an “active trader” as someone who places at least 10 trades or more per month, or 120-plus trades per year. Alternatively, a “hyperactive trader” is someone who trades at least 10 times as much, 100-plus trades per month or 1,200-plus trades per year.
Understanding where you fall as a trader is critical in selecting a broker. As an active trader, you are likely comfortable paying $4, $5, $6, or even $7 per trade. You want low-cost trades, but a feature-rich platform or research is important to you too; therefore, you are willing to pay more. However, speak to a hyperactive trader, and you will find the platform design, research, and trade tools don’t matter; cost and execution talks while everything else walks.
Because of this, our top 10 ranking in this category considers both types of trader, with the most significant factors being price, speed, and execution, as these are elements both have in common.
Our No. 1 pick, Interactive Brokers, wins this category because the broker caters to active and hyperactive traders globally. You won’t find the brokers’ platform built for new investors, and you can forget about research. What you will find, though, are programmable hotkeys and 63 different order types for placing every possible trade imaginable, including algorithmic orders, alongside the lowest margin rates in the industry. The broker offers two commission structures, fixed and tiered, with discounts available on the tiered structure as you trade more volume, i.e., millions of shares.
Under the tiered rate, also known as an “unbundled” rate, Interactive Brokers pass 100% of all market rebates (or charges) for adding (or taking) liquidity back to their clients. Many market exchanges will pay your broker for routing your order to them. These rebates are usually no more than a tenth of a penny or two per share, but they add up.
Using a broker like Interactive Brokers, routing a 1,000-share buy limit order on the NYSE will currently net you $0.001 per share. Interactive brokers charge $.0035 per share, so the original $3.50 trade now becomes only $2.50, thanks to a $1.00 rebate from the NYSE. This represents a savings of nearly 30 percent. Note, however, this goes both ways, as routing a straight market order to the NYSE instead would incur a charge of $.001 per share, thus increasing the cost of the trade.
While Interactive Brokers gives (or charges) this rebate to clients as in the example above, most online brokers do not offer this option. Only three brokers offer an unbundled commission structure: Interactive Brokers, Lightspeed, and TradeStation.
Order routing aside, our other top finishers in this category shine for different reasons. Lightspeed has fully customizable trade hotkeys alongside the best rates for options trading. TradeStation provides three different commission structures with quality executions and an insanely powerful desktop platform rivaled only by TD Ameritrade’s thinkorswim. OptionsHouse offers competitive commissions alongside tradeMONSTER, the best stand-alone platform for options trading. We recommend reading our full online broker reviews for a complete breakdown of each broker.
All in all, finding the right broker as an active trader first requires defining “active.” Next, ask yourself, “How important is low cost?” Assume that the lower your trade costs are, overall quality will falter in one or more other areas such as research, platforms, tools, or ease of use. In the world of a hyperactive trader, there is certainly no free lunch.
All pricing data was obtained from a published web site as of 11/01/2014 and is believed to be accurate, but is not guaranteed. The StockBrokers.com staff is constantly working with its online broker representatives to obtain the latest pricing data. If you believe any data listed above is inaccurate, please contact us using the link at the top of this page. For stock trade rates, advertised pricing is for a standard order size of 500 shares of stock priced at $30 per share. For options orders, an options regulatory fee per contract may apply.
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