TD Direct Investing – Page 46

Posted on May 5, 2012 by user — Leave a comment

Event Review – Options Education Day – Vancouver 2012

Options Education Day is an annual series of events organized and hosted by the Montreal Exchange (part of the TMX Group) as part of their goal to better educate retail investors about options and derivatives products. While options and derivative products are more complex than your average stock, there has been an enormous growth in availability and interest in these types of investment products because of the versatility of strategies they offer investors. So, even though it takes some extra effort to learn them, there are many more potential strategies for creating wealth as well as preserving it that options offer investors.

There were three great speakers at the Vancouver stop on the Options Education Day: Jason Ayres, President of Learn to Trade Global and founder of optionsource.net; Joseph Burgoyne, director of institutional and retail marketing for the Options Industry Council and Patrick Ceresna, chief derivative market strategist for Learn to Trade Global. Click on the following links to see our interviews with Jason, Joseph and Patrick.

The event itself had workshops for “beginner” and “advanced” topics that provided information appropriate to the level of complexity investors were willing to dive into. The beginner sessions covered an “introduction to options trading” and “introduction to ETFs” whilst the more advanced sessions covered “advanced options spreads” and “getting to know the greeks and the impact of volatility”. A final workshop covered using options as a tool for creating a balanced portfolio.

Exhibitors at the event included Canadian discount brokerages such as Disnat Direct, Interactive Brokers, Jitneytrade, TD Waterhouse, Virtual Brokers and National Bank Direct Brokerage, as well options education firm Learn to Trade Global, and also the most awesome Canadian discount brokerage comparison company Sparx Trading (yes it is a shameless self-plug!). We had a chance to talk to lots of investors of all levels who were all there not only for the great food, but also to get a better understanding of options and how to use them in their investing and trading strategies.

Overall this is an excellent event for individuals who want to learn about options at a live event and also network with fellow investors. It was well-organized, the venue choice great and the cost was nominal and included materials, breakfast and lunch – a great deal for their price of $45. The conference organizers did a great job of preparing materials that attendees could use during the presentations and take with them after the sessions were done.

For those that could not attend in person, the Montreal Exchange also has a lot of the material that was covered at prior options education days in the education section on its website. Another excellent source of education materials for individuals looking to learn more about options is the Options Industry Council website available here.

Upcoming stops for the 2012 sessions of Options Education Day include Winnipeg (June 2), Montreal (September 8), Toronto (September 29), Calgary (October 20) and Edmonton (October 21). You can find out more details for these and other education events checking our events calendar here.

Posted on March 15, 2012 by user — Leave a comment

How to choose an online discount broker – Part 5 – Commission Pricing II

Why is commission pricing so complicated? Why is it so hard to get good information? Those are some of the questions that inspired us to create the most user-friendly brokerage comparison and review section in Canada. To be able to compare apples to apples, we had to reverse engineer the marketing and sales pitches, to get down to what trading commissions cost with online discount brokerages.

In an ideal world, consumers would be able to get the lowest rate at a flat fee, no strings attached. While it is difficult to “feel sorry” for a bank or financial institution, providing access to markets and data as well as coordinating transactions is pretty complicated and expensive, which means that like any other business, they have to be able to pay their bills. Translation: companies that charge low commissions may not be able to afford the full suite of services and features that other discount brokerages do.

To fixed-fee or not to fixed-fee?

Flat fee pricing – one number for all your trades, certainly makes the math easier to figure out when keeping track of your costs. Whether or not it is the “best” or lowest flat fee is a different question altogether. “Flat fee” is also different from “fixed fee”.

A truly “flat fee” is just that – a flat price that includes all of the little extra fees that come along with executing a trade. A “fixed fee” for commissions is a fixed commission price you pay per trade, but does not include the “extra” exchange or middle men fees. Because there are a slew of “middle men” that help connect buyers and sellers of a stock, each one of those middle men takes a fee. Usually the most common types of added fees are electronic communication network (ECN) fees and the Securities Exchange Commission (SEC) fees (for US bought stocks). These fees are usually charged as fractions of a cent on the number of shares traded (e.g. $0.0035/share for TSX) and prices vary from ECN to ECN. These ECN fees usually show up when placing market orders rather than limit orders.

If this all seems confusing, what you really need to know is whether your “flat fee” is truly flat or if you still have to pay any additional fees per trade. If you’re choosing an online discount broker, this is one question you’ll want to be sure to ask.

What’s the catch?

Currently, only a handful of Canadian discount brokerages offer truly “flat fee” pricing. Most offer the “fixed fee” model. To qualify for either, though, one usually has to make a certain minimum number of trades in a given amount of time or pay some fee for a data package.

For those discount brokerages that have a threshold to qualify for truly flat fees, the current range of trading activity goes from a minimum of 10 trades per quarter (Credential Direct) to 150 (TD Waterhouse). One of the only discount brokerages that offers flat commission pricing independent of activity level is Virtual Brokers however they have a required monthly data charge that you need to pay for so there is a bit of a string attached there.

One of the biggest benefits of fixed-fee pricing is that you not only know your minimum cost, but you also know your maximum commission cost per trade. Hybrid or variable pricing, however, can get very expensive because there is no “maximum” price you pay per trade. What you pay is determined by the size or dollar value (or both) of your transaction.

What if I don’t trade very much?

If you’re not an active trader, and our research shows that most investors typically don’t trade all that often in a year, the reality is that you will be paying a standard rate. Standard commission rates range anywhere from $6.49 to $29, with most bigger online discount brokerages falling closer to the $29 end of the price spectrum. The exceptions to this are companies that have a fairly tight range of what you can be charged, such as Questrade, which charges you between $4.95 and $9.95, depending on the size of your order, not how often you trade.

Is there a down side to fixed-fee pricing?

Sometimes your trade volumes or activities are not particularly high. If trading a few hundred shares with a handful of transactions a year sounds like you, then variable-fee commissions are not necessarily a bad option. Take Questrade again, with their volume-based pricing you can pay as little as $4.95 (+ECN fees) to be trading 500 shares at any one time. Similarly, Virtual Brokers’ “99” plan can cost you as little as $0.99 for a 100 share trade. From a cost perspective, having to pay $0.99 instead of $29 is a substantial savings if you are not trading often enough in a year to qualify for fixed-fee discounted pricing.

The Bottom Line

In the current Canadian discount brokerage market, there is a lot of competition that is driving commission prices lower. One of the best things you can do to make sense of all the choices is to ask yourself “how often do I trade?”. Once you know that answer, it will be easier to see if going with a broker that offers you “fixed-fee” pricing or “variable-fee” pricing will be the most economical for you. Keep in mind that in order to offer those rock-bottom prices, some other elements of the discount brokerage, such as customer service, accessibility or support resources may not be what they are at other more expensive discount brokerages.

Read the previous article in this series.

Read the next article in this series.

Posted on March 14, 2012 by user — Leave a comment

How to Choose an Online Discount Broker – Part 4 – Commission Pricing I

One of the first places that retail investors look to when thinking about choosing a discount brokerage firm is commission pricing. Pricing, however, isn’t as straight forward as the lowest price commission per trade. When thinking about pricing, value is really what you as a potential or existing client are seeking. After all, if you need or want timely service, fast order execution time, a great trading platform or educational resources, all of those components change what you would be willing to pay. With all of the options in a very crowded discount brokerage market, how can you meaningfully compare apples to apples?

Even though there are many different parts to consider when choosing the best online discount broker for you, this series of articles focuses on understanding commission pricing as that is one of the major marketing messages sent to consumers.

One helpful way is to understand that being a brokerage firm is a business, and like any other business, brokerages are in it to make money. Their “business” is providing access to the stock market – they facilitate investors/traders being able to exchange financial products in a market. As such , discount brokerages make their money on trading activity, and do so in one of the following three ways:

a fee per order (regardless of the number shares traded per order) or a
fee per volume of shares traded, or a
hybrid of fee per order and fee per volume

The fee that you get charged per order or per volume can also depend on the price of the stock – i.e. is the price above or below a certain level. Currently that ‘threshold’ is a stock price of between $1-$2, depending on the discount broker. So, to summarize, the way in which commission price is determined can be: the number of orders you make, the size of the orders (in shares) you make and/or the price of the stock you are buying/selling.

Therefore when thinking of pricing it makes sense to really understand your trading/investing style and level. To make matters tricky, there is no set “definition” of an “active” trader. Each discount broker has a different threshold of what constitutes active or not. The current range to qualify for “active” trader status (and therefore discounted pricing) goes from a minimum of 9 trades per quarter (OptionsXpress) to 150 (iTrade, TD Waterhouse, Qtrade, RBC Direct Investing). If it sounds a bit complicated, it can be. Luckily our broker comparison table helps to compare discount brokerages a snap because we’ve put all of those pieces side by side.

In the next section on pricing, we will take a closer look at the commission pricing options of “flat-fee” pricing, standard pricing and “range pricing”. We’ll also share some tips on ways to get the best commission pricing.

Read the previous article in this series.

Read the next article in this series.