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Commission shopping w/brokerages

  #1 (permalink)
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Commission shopping w/brokerages

For those that commission shop brokerages, see below. BTW, I would advise against commission shopping brokerages because it's akin to asking to be launched into space by the cheapest bidder. Perhaps for something so important you might consider something more than price alone. But generally those shopping for the cheapest are the new inexperienced traders, there is not much anyone can say to stop them.

Anyway, when price shopping, be sure to ask for the "all-in" price. An example might be where most brokers quote a commission price that includes exchange fees, where another broker charges a "clearing" fee on top of the commission and exchange fees. It's just an example, you need to be very careful. One would assume it's legal, I don't know. What I do know is I've seen users on futures.io (formerly BMT) that think they have a good commission price, but in truth they are paying above average after including a "clearing" fee.

Anyway, be certain that you get the quote in writing and be certain the broker spells out in writing that it includes all fees and commissions.

Be certain you also ask, in writing, if the price is round turn or per side. I've seen some sneaky brokers quote prices on a per side basis. That's like asking a bank what their interest rate is, and they say 4% -- so you deposit the money. But then later you try to withdraw the money and they tell you there is a 4% fee to withdraw money. In other words, assuming you are going to eventually sell the futures contract that you bought, you want to know the round turn cost....

Also ask about any platform fees, inactivity fees, minimum trade requirements, account balance fees, etc. Basically I would start by asking for the fee schedule and examining it closely.

If the broker tells you any price different from what is in writing, get him to put it in writing.

Unfortunately, you aren't done yet. I have personally experienced, as have others, brokers that quote you one price but then charge you another price. You need to very carefully examine your trading statements.

I highly encourage any user who is charged a price different than what they were quoted to report it to the CFTC and NFA, as well as post about it on futures.io (formerly BMT).

At the end of the day, if you are wanting the cheapest just keep in mind you get what you pay for. The only way the "cheapest" brokers can survive is by extremely high turnover of customers (customers that blow out or stop trading replaced by new blood or newbies).

Mike

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  #3 (permalink)
Boca Raton
 
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At Optimus we have always quotes and all in rate which includes everything and is the full round turn. At times it was rather puzzling to me when customers came back with "can you match..." which was below the exchange rate. It took us time to realize what is looked at and help customers to come up with the full figure they are paying.

However, the commissions entry is a manual process and errors can occur, so the best thing is to check the statement following the first day of trading. If there is an error, it could be rectified by calling the broker. I made such mistakes and rebated if such thing has occurred. I prefer as a broker that a customer try and resolve with their broker.

PM with any questions about optimusfutures (800) 771-6748 (561) 367 8686. THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES TRADING.
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  #4 (permalink)
Legendary Market Wizard
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Great advice @Big Mike in that you need to consider the all in fees, and that if your just looking for the cheapest out there you probably get what your paying for.


Big Mike View Post
Be certain you also ask, in writing, if the price is round turn or per side. I've seen some sneaky brokers quote prices on a per side basis. That's like asking a bank what their interest rate is, and they say 4% -- so you deposit the money. But then later you try to withdraw the money and they tell you there is a 4% fee to withdraw money.


mattz View Post
At Optimus we have always quotes and all in rate which includes everything and is the full round turn.

While I understand your point here, the reality is exchange's quote exchange fees 'per side' and not per round turn, hence I think Mike's analogy is a bad one, and it's actually understandable that many brokers use the same convention. It doesn't make them bad, you just need to understand what you are and aren't paying/being quoted.


mattz View Post
At times it was rather puzzling to me when customers came back with "can you match..." which was below the exchange rate.

I know this isn't what you meant Matt, but with exchange rebates* it is very possible to pay less than the quoted exchange fee. But then again somebody who is getting that rebate probably isn't shopping rates like that.


*Some of these exchange rebates are a lot easier to obtain than you might think!


Last edited by SMCJB; January 9th, 2014 at 12:19 AM. Reason: Trying to get @Big Mike to link correctly
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  #5 (permalink)
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Let's say broker A quotes 4.00 RT commission including exchange fees.

Broker B quotes 3.80 RT commission including exchange fees.

You would think broker B is cheaper.

But actually, broker A in this example does not charge a "clearing" fee. While broker B charges 1.00 "clearing" fee.

At end of day, broker A is cheaper in this example.

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  #6 (permalink)
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SMCJB View Post

It doesn't make them bad, you just need to understand what you are and aren't paying/being quoted.
I know this isn't what you meant Matt, but with exchange rebates* it is very possible to pay less than the quoted exchange fee. But then again somebody who is getting that rebate probably isn't shopping rates like that.
*Some of these exchange rebates are a lot easier to obtain than you might think!

No, it does not make them bad, but retail does not use the same convention as the exchange.
I have been working retail for a long time to know when I communicate with them it must contain buy and sell with all in included as oppose to quoting a price to a person with an exchange membership. We do have guys with exchange membership and I did help them in process of becoming one.

PM with any questions about optimusfutures (800) 771-6748 (561) 367 8686. THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES TRADING.

Last edited by mattz; January 9th, 2014 at 12:35 AM. Reason: working 16 hours straight and cant type for the life of me
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  #7 (permalink)
Legendary Market Wizard
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Big Mike View Post
Let's say broker A quotes 4.00 RT commission including exchange fees.
Broker B quotes 3.80 RT commission including exchange fees.
You would think broker B is cheaper.
But actually, broker A in this example does not charge a "clearing" fee. While broker B charges 1.00 "clearing" fee.
At end of day, broker A is cheaper in this example.
Sent from my LG Optimus G Pro

Mike I'm not sure what your point is. I already agreed that you need to understand what you are and are not payiing for. I was just making the point that talking about side's vs RTs isn't wrong. In your example broker B is in my opinion committing fraud. How can you have an "RT commission including exchange fees" that doesn't include commissions? Anybody who tried to get away with practices like that is a 'bucket shop' and not a broker.

mattz View Post
No, it does not make them bad, but retail does not use the same convention as the exchange.
I have been working retail for a long time to know when I communicate with them it must contain buy and sell with all in included as oppose to quoting a price to a person with an exchange membership. We do have guys with exchange membership and I did help them in process of becoming one.

Arguing semantics here I know, and getting off topic, but I guess it comes down to what you define as retail? Do you view somebody who has an exchange membership as retail?

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  #8 (permalink)
Boca Raton
 
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SMCJB View Post
Arguing semantics here I know, and getting off topic

Agreed, we both have good intentions to help. Let me stop here.

PM with any questions about optimusfutures (800) 771-6748 (561) 367 8686. THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES TRADING.
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  #9 (permalink)
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@SMCJB My post was not directed at you.

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  #10 (permalink)
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@SMCJB Apparently "clearing" fees aren't exchange fees. I dunno about legality. I am just making people aware of tactics used in the industry.

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