Trade Execution: Why It Matters, and Broker Comparison

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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.

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Comments

  1. I have an Ameritrade and Scottrade account. My experience agrees with the ratings for their execution speed. My market orders in Ameritrade seem to sit out much longer than my Scottrade orders. Last friday, Ameritrade took a long time (more than 10 minutes) to fill my market orders for an IPO, while Scottrade filled it almost immediately for the same stock.

  2. Thanks for the info. I’m a daytrader that has stuck with Scottrade so far, even though their platform lacks several features that Tradestation or Cyber have. One reason is that I am overall very happy with the execution I get. I have seen people complain about the order flow issue, but I’m just not seeing any negative effects of it, as far as I can tell. It’s also really rare when I can’t short a stock, which is great.

  3. Hey, I want to open up an investment account, which company is the best, cheapest? The websites are so complicated in explaining and I believe that is done on purpose

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