Talk:Direct access trading
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Comments made by 64.110.251.69 (on the edit/history page):
- buy and hold investors can make good use of direct access trading to minimize acquisition costs. The IB platform is dirt cheap and offers excellent value for an infrequent purchaser of securities
I don't agree. First it is said investor is not for direct access trading (tradition wisdom). An investor may not make any trades for several months. Take IB as an example, it would cost $10/month. If an investor don't trade for 6 months, it costs $60!!
If you still don't agree (you may think tradition wisdom is wrong), you should add sidenotes instead of simply deleting it. Readers can learn more (and make their own judgement) in this regard. Thanks!
--Wai Wai 18:48, 19 July 2006 (UTC)
I am a long term investor with a small amount of capital, and I use MB Trading, which is direct access, because it is far cheaper for me than the non-direct alternatives. They have a plan which allows me to trade up to 100 shares (which is more than I ever buy at one time) for only $1, with no inactivity fees, monthly charges, or anything else of that sort. What does your traditional wisdom have to say about that? --Benna 22:40, 9 August 2006 (UTC)
Hey, so it is just $1 with no other hidden charges. Sound much better. But do you still enjoy the same benefits as other active traders (eg you are using the same high-end platform as what other active traders do, your execution speed the same as the active traders)?--Wai Wai (talk) 10:08, 10 August 2006 (UTC)
It is the same in every regard except one must have a higher account balance than I currently do in order to get free level II quotes. Instead, I get what they call "Level 1 3/4" which are like level II except that they lack individule quotes for each market makers, but have ECN book quotes, NYSE and AMEX regional quotes, national best bid/offer, and are still real time. This is not a problem for me, obviously, as a long term investor. The software and execution speed are the same as for active traders. --Benna 04:30, 11 August 2006 (UTC)
What about the platform? Are both inactive and active traders use the same high-quality platform? --Wai Wai (talk) 10:51, 12 August 2006 (UTC)
Yes. --Benna 04:06, 16 August 2006 (UTC)
Many long-term investors use small amounts of margin borrowing (because margin borrowing has favourable tax treatment), or wish to re-invest their dividends. Through AMTD or similar brokers, the costs are very high to re-invest small amounts of money ($9/trade), or to use margin. Even though Interactive Brokers charges a minimum commission of $10/month, that minimum commission is rather small in the entire scheme of things, and is by far offset by the savings one would achieve on commissions.
For me, in Canada, the break-even point of IB is 3 trades a year, compared to using a traditional Canadian discount brokerage firm (ie: TD Waterhouse, Royal Bank Action Direct, etc.). I am not an active trader by any means, and often pay the entire $10/month minimum commission. IB still represents very good value for me.
Also, IB is a very competitive alternative to DRIP plans (you know...those plans where you mail in cheques to companies that you own a couple share certificates of, and they sell you more shares and re-invest your existing dividends). Once you consider the cost of stamps, your time, driving to the post office, cheques, etc., IB becomes a very good choice in lieu of participating in a few DRIPs on a monthly basis.
Also the suggestion that long-term investors don't care about expenses and spreads is ludicrous. The discount brokerage industry wouldn't exist if that were the case. IB is nearly the best thing since sliced bread for investors (buy and hold, and daytraders alike), and their business model is so successful that most other discounters are trying to copy it, in some form or another, by rolling out direct access platforms to their most lucrative customers. And most media is afraid to publicize IB out of fear of losing advertising dollars from the majors who are literally running scared with the concept that IB's $1 commission pricing model can only gain momentum in the future.
64.110.251.69 22:31, 19 July 2006 (UTC)
Another problem with this page -- "Direct Access Trading" does not obviate the need to go through a broker or stock exchange member firm. When you trade using the IB platform, or the platforms available from various other service providers, you are *not* directly talking to the NYSE/Nasdaq/Amex exchanges, but rather, you are still talking to IB (or whichever broker you choose), who in turn, forward your orders, in almost real-time, without review (basic sanity and margin checks aside) to the exchange.
It is somewhat misleading to suggest that "Direct Access Trading" implies that there is completely no broker inbetween you and the exchanges.
Traditional brokered trading involves a broker receiving your order (by phone, or by computer), reviewing the order for investment suitability, and then forwarding it to whichever exchange they want, or internalizing the order flow, to match buys and sells within the firm itself. Whereas a direct access broker does not perform a suitability review, and allows you to specifically direct your order to an exchange of your choice if you so desire.
64.110.251.69 02:40, 23 July 2006 (UTC)
Dear 64.110.251.69: Sorry for belated replies. You said "the suggestion that long-term investors don't care about expenses and spreads is ludicrous." Hmm... here's what I think:
- investors don't mind much about slippage (nickel thrift), not necessarily trading expenses. Everyone suffer from the same spread in regulated markets.
- If it is $10/month, it is charged $120/year.
- your comparison is flawed as there're other cheaper alternatives.
- Why not choose a discounted brokerage which charge per share (I know there are firms which offers per-share and per-trade) without any inactivity fees?
- I don't wish to advertise any firms, so I won't name any firm.
- In Trading strategies for direct access trading by Robert Sales, it says a larger number of normal investors use online brokers. Direct-access trading are for active traders and self-direct asset or private managers.
- Read this: http://www.investopedia.com/articles/01/101701.asp : The "nickel" is important to many investors (primarily traders), but it amounts to only a few dollars if you are buying less than 100 shares. If you aren't an active trader, a nickel won't even show up on the chart over the long term.
Anyway, as said prevously, since it is common to suggest (long-term) investors to use full-services or discounted online brokerage. Deleting the statement all together is not appropriate. Rather leave the statement. Add your summarised notes and explanations in <ref> </ref> tags, so readers can thus read different arguments and judge on their own.
Finally, would you mind helping to expand more in some section stubs, if you are able to do? Thanks a lot!
--Wai Wai 17:34, 23 July 2006 (UTC)
What can I say, other than 'paradigms shift'. By your same logic, infrequent traders should be paying $200/trade because, over the long term, $200/trade won't really show up. In reality, though, commissions make an absolutely huge difference to returns, which is why brokers such as etrade, Scottrade, TD Ameritrade, etc., have absolutely flourished. Now many of those same investors are moving into even less expensive options, many of which are based on 'direct access' platforms. Even the traditional discount brokers are moving to offer their more affluent investors direct access systems and correspondingly reduced costs.
$120/year for an IB account, as I perhaps mentioned in another talk page (Talk:Interactive Brokers) is peanuts. I'm a buy and hold investor, and I've had 3 splits, and 4 takeovers this year already (Dofasco/Arcelor, Falconbridge/Xstrata, ATI/AMD, Inco/Phelps Dodge). AMTD would have charged me fees of $100 just for the 4 M&A items alone. IB charges/charged me nothing. Now that's value for money!
64.110.251.69 18:48, 23 July 2006 (UTC)
First don't be confused between slippage and commission. The article just mentions long-term investors don't care much about slippage.
Second why do a trader should be paying $200/trade? It doesn't make sense. I never see a firm who charge $200/trade. Your comparison is flawed as there're far cheaper alternatives.
Your suggestion is reasonable in your specific case, but it may not if you are willing to consider other cheaper alternatives. Why not choose a discounted brokerage which charge per share (I know there are firms which offers per-share and per-trade) without any inactivity fees? It should be cheaper than keeping paying inactivity fees month after month.
Again, if you read articles about direct access trading, authors usually suggest they are typically suitable for day traders and active traders. Could you quote some sources which they say they are typically suitable for (long-term) investors too? Note: The paragraph just state something in general. It is not going into particulars, or judge case by case. Perhaps there are a few day traders who will not choose direct access brokerage for some reasons.
After all, if you wish to, you can always add your sidenote in <ref> </ref> tags. Since it is you who mention these points, I leave it to you to add your sidenotes. Thank you!
Because $120 is pocket change. It really is. In many jurisdictions, the $120 can even be taken as a deduction on income tax, so its far less than that.
Why keep an IB account as a non-active trader:
1) Cheap purchases of stock/ETFs/futures/options 2) Cheap Forex 3) Cheap rebalancing and dividend reinvestment 4) Cheap borrowing. Much cheaper to borrow against your stock portfolio to buy a car or a boat, than to obtain financing from a bank. 5) Sophisticated software and tools for portfolio risk analysis. 6) No fees for stock splits and other corporate reorganizations/actions.
IB, for stock investors, is literally the best thing since sliced bread, if you are sophisticated enough to understand and utilize its interface.
I do agree that IB and its direct access platform isn't the first thing that comes to mind when a new investor looks to open an account. But IB is obviously gaining a lot of momentum and opening a ton of new accounts, and I suspect many of those are coming from cost-conscious buy-and-hold investors who don't obsess over a small inactivity fee in light of all the other benefits.
64.110.251.69 07:28, 26 July 2006 (UTC)
[edit] Special people
Please do not use terms such as "special people" in an encylopedia article. It's too vague. --SueHay 02:06, 30 March 2007 (UTC)
