The SEC has a nicely-written article about how your stock trades are actually executed, and how it may affect the price you buy or sell at. This stems from the fact that usually your broker has to send your order to a market maker to actually do the trade, which may in turn pay your broker a rebate. Critics say this raises questions about whether your order will truly be routed to get the best price, and I would tend to agree. However, many brokers do some form of this, and many rebates are linked to supplying enough liquidity for each market maker.
In looking for a good comparison of trade execution between different discount brokers, I found this recent Barron’s broker comparison of 27 brokers, including many you’ve seen mentioned here:
Sample Trade Execution Ratings (out of 5, higher is better)
MB Trading – 4.8
Fidelity – 4.4
E-Trade ‘Serious Investor’ – 4.2
Scottrade – 4.1
TradeKing – 3.8
Schwab – 3.7
Ameritrade I-Zone – 3.4
FirsTrade – 2.8
Overall, the brokers that target very active traders got higher scores than the more mainstream ones. Although Scottrade does accept payments for order flow, they rated a 4.1 out of 5, which was above average in this group. MB Trading achieved one of he top scores 4.8 with its advanced “smart” order-routing features. It remains to be seen how Zecco.com does with their free stock trades.
As the Barron’s article would suggest, trade execution is still one of several criteria with which to judge your potential broker, and any differences remain hard to quantify with dollar amounts.