Archives for October 2006

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.

People are still asking me for Scottrade referrals, but I’m not allowed to give them out anymore. Instead, I’m going to start a list of My Money Blog readers who already have accounts that are willing to give out referrals. If you are interested, please contact me and I’ll put you on the list.

Please note that you may need to share your name, e-mail, and/or branch location when giving out a referral. Tell me if I referred you initially, and I’ll give you priority. Otherwise, I’ll just run through the list in order, everyone gets a shot. The referrals will be between just the reader and referree, so don’t even mention this blog when signing up. Hopefully this will resume the referral sharing love.

Added: I reserve the right to move on to the next person in the list if the referrer contacted doesn’t respond within 24 hours, at the request of the referree.

Added 10/14: I have a good number of people now, thanks everyone. You can still e-mail if you want, but know that there will be very little chance that I will use your referral.

Maybe new broker Zecco (my review) was right and stock trades really are a commodity now. Today, Bank of America announced that they will be offering 30 free online trades a month for customers with at least $25,000 in combined deposits. Not surprisingly, shares of discount brokerages like E-Trade (ET) and Ameritrade (AMTD) are not doing so hot, both down ~10% today.

It’s only available in the Northeast at first, nationwide later. Thanks to Corey and everyone else for the tip.