Free Online Stock Trading – Or Not?

This week I’ve seen two organizations offering free online stock trading. On CNBC, the group at Zecco was profiled Monday, and Bank of America today. You’ve got to wonder, how can they do this? Is it really the smart way to go when trading? If you’re serious about the stock market, I think you’ll find that there’s really no free lunch when you’re talking trading and execution.

Now, I’m not going to knock these two systems, as I don’t know what they specifically offer. I will though, offer a few advantages to using a direct access system with multiple routes for your trades.

Speed of execution is one advantage of using a direct access broker. Most web-based trading platforms require you to manually enter your symbol, price, the number of shares, etc. Direct access allows you to click on the symbol, share amount, charts, and individual ECN routes. In a fast moving stock, this is crucial. When you’re competing against other traders who may see the same setup, you’re at a disadvantage already by having to manually enter your trades. Using ARCA – Archipelago, is probably the fastest way to get your order executed. There is a small fee equal to about .30/100 shares, on average, but a few quicker executions can make this up in no time flat.

Multiple ECN routes allow the direct access trader to choose the route of the trade. What happens if you’re free web-based broker goes down when you’re in a trade? If you’re trying to make an exit, having multiple options is an advantage.

Is your cash swept into some money market based account when you aren’t trading? Compare the yields to make sure you’re money is making interest when you’re not in a trade.

When you shop around for a broker, ask yourself what your priorities are. For the individual who makes infrequent moves in the market, a free online stock trading option may work best. For those traders with serious intention, direct access trading platforms are a must have.

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