Update 4/15/2008: Zecco has people griping in their own forums now - and they said it better than I ever could have: (reprinted for perpetuity)

I tried logging in Monday morning - and failed; After about and hour, I gave up for the day and went about my business. Something similar happened early in Zecco's life, so I figured It's just a start-up problem.

However, that being said - Zecco should be nearly out of the start-up stage. Zecco has an Official Notification out regarding the website being offline and a offhand reference to misleading default "scheduled maintenance"/404 page - An internal review is needed - and not of the technical dashboard problem.

The Friday update was scheduled and advertised ahead of time - meaning that Zecco should not have been surprised with the consequences.

Picking Friday for updating is a smart move on IT's part. Not having a secondary system in place to rollback production changes is unacceptable for a real-time website. I highly suggest IT or management review system update policies to ensure that a plan is in place to rollback changes instantly.

In IT, updates are a part of life. With that in mind, we know that unanticipated consequences of an update are also part of life. However, for real-time systems, clear oncall/quick chain-of-command, multiple response teams & backup servers running alternate versions are part of life(or should be) - in 2008 it's cheap to use virtual servers as backups running proven older versions with proven older routing configurations.

and also from the same forum thread:

I've called at least once a week, every week complaining about the matter of fact attitude zecco seems to have about keeping it's system up at trading times. It's VERY clear these are server errors and crashes (I'm retired from an IT career) Denying these server failures only fuels my fire that I'm dealing with a bunch of liars that only care about numbers. I trade options which generate revenue for zecco/penson everytime I click the mouse.

Today, I'm making arrangements to transfer my account to anywhere else. I'm done with sloppy management and unprofessional IT people. I suggest all of you follow suit.

Allen Reynolds Jr.

My experience:

So I get up this morning and attempt to get into my two brokers' websites.

Zecco is completely unresponsive and I have not been able to log in for over an hour since the markets opened today!

I thought SogoTrade was fine - until it decided to do this to me while I was watching my NTZ position:

AWESOME!

At least I didn't have an open position in Zecco... unfortunately I do have a somewhat precarious position of 300 short shares of NTZ that I'm holding in my SogoTrade account, which is sitting at a minor loss, but if it moves against me even more... I'd like to at least have a stop order in place. If I would have known SogoTrade was so worthless I would have put my stupid protective stop in, jeebus!

I guess with Zecco and SogoTrade you get what you pay for. Maybe one of these days I might be able to get an actually worthwhile broker that I can rely on. These have not been my first connectivity issues with either broker, and Zecco has proven itself to be particularly unreliable.

Is this their way of sticking you for the cost of 'broker-assisted' trades that you can make by calling them up?

At least some brokerages have the integrity to not make you pay more for a phoned-in trade; maybe because they realize that a lot of those phone-ins will be because their web-platform is COMPLETELY AND UTTERLY WORTHLESS?

I was finally able to get to the Zecco homepage without simply being unable to connect - they say the site is down for scheduled maintenance!

SCHEDULED MAINTENANCE ON MONDAY MORNING RIGHT WHEN THE MARKETS OPEN

Scheduled maintenance my butt - what broker would be so dumb as to schedule maintenance at possibly one of the most crucial trading times? Sounds like someone puked all over their servers, or they're using IT slave labor from foreign countries that have no clue about market hours.

Wow Zecco, you got my vote - you have such an awesome sense of how to run your business and please your customers!

Cost for Zecco phone-in trade: $20
Cost for SogoTrade phone-in: $27

For reference:
Zecco Brokerage Account Review - yeah, decent execution if you can actually place any orders.
SogoTrade Brokerage Account review - supposedly NXTM was on their short list on last Friday, but I was unable to short it and received no explanation why I was unable to do so (their customer service has been worthless in responding to this issue).

Long story short - if you're more active than you are completely and utterly dead, you might not want to choose either of these brokers.

Pictures are worth a thousand words.

Go check out this -$116,736.90 loss in a Forex account.

And to top it off, these losses were made with borrowed money!

Ouch ouch ouch.

What I'm curious about is whether he had any sort of hard stop where if he lost X amount of money, he wouldn't let himself trade anymore. I'm guessing not. Also, is this death by a thousand cuts or the result of multiple big blowups? (thousand cuts would at least imply some sort of risk management system)

I assume that these excess losses were caused by the inherent use of leverage within the Forex market. Leverage is icky for beginning traders, stay away. You have to have very solid risk management to begin using leverage.

Although my account is down from my initial deposit, I think if my losses get around $500 I will probably freak out and stop trading. Trading is fascinating and all that, but my goal is to NOT LOSE MONEY.

This guy made a huge mistake - he was trading with money that he could not afford to risk. His mom's money, his broker's money, his bank's money - all possibly the worst sources of capital possible. He was compounding leverage; not only was he trading in a leveraged market, he was trading borrowed funds!

Certainly makes me feel quite a bit better about the -$94 loss I had on my GU trade the other day. However, that loss still lies far outside the bounds of my risk model, and represents a failure on my part in enacting my methodologies.

Sign up with Zecco and get a free book.

I have discovered over time that Zecco seems to have a somewhat limited short inventory, unlike their competitor, SogoTrade.

UPDATE: go here to see some issues I have had with Zecco

If you're having trouble deciding on a broker, this article of things to think about when choosing a discount broker can give you some food for thought.

Zecco has a pretty good deal; have at least $2500 of equity in your account (cash or securities) at one point during a month, and you get 10 free trades to use until the month is over. Considering the typical commission for a discount broker is about $5-10 this can easily save you $50 a month if you are active or semi-active in the markets. If you are not active in the markets, this is a good deal because you'll never pay anything in commissions - assuming all you do is buy and sell stocks/ETFs.

Zecco also gives you the ability to trade options for a relatively decent price. However, no free option trades.

Zecco Kind of Bites

Zecco is not good for a very active short-term trader. You will not find any sort of data solution with these guys; get ready to pony up for a third-party data service (which you should probably do anyways). The only saving grace is that there are real-time charts with a fair bit of options (various indicators, candlesticks, etc. from BigCharts). However, they will not update in real-time, so be ready to click 'refresh'.

Do not use Mozilla Firefox to access their web-based trading platform. I have had many technical issues while attempting to use Mozilla. I recommend that you use MSIE (ugh).

I have often experienced connectivity issues in the mornings and evenings.

price improvement, execution

One thing that Zecco does seem to be good at that SogoTrade is not (SogoTrade is my other brokerage account) is price improvement on orders. Execution times seem similar, but if I enter a limit order with SogoTrade I have NEVER gotten a price improvement. Not even from like $15.00 to $15.0001. Limit orders with Zecco will frequently feature price improvements, even if it is just a few cents on a share here or there. One of my earliest trades with Zecco was on the super-illiquid CBOU stock, and a limit sell order of $2.90 from the night before was executed in the morning at $2.95 - from my experiences with SogoTrade, I doubt they would have done the same; it makes me wonder if they're keeping those price improvements for themselves.

Zecco has all sorts of orders

Zecco has all the order types you need, specifically the ones SogoTrade lacks - stop, stop limit, and virtual trailing stop. This makes them suitable for the more active trader.

Also, Zecco does not count modified orders and cancelled orders against your free trades. You can sit and modify/cancel trades all day long and not pay a penny, or use up your precious free trades. SogoTrade is not so forgiving with its free trade promotion - a cancelled or modified order uses those puppies up.

if you like penny stocks Zecco is pretty good

Zecco charges no extra fees for stocks with very low share prices, unlike many brokerages which will typically add extra commissions for stocks that are less than $2-$5

Zecco is good for an IRA that trades frequently

Unlike SogoTrade, Zecco offers an IRA option. Currently they only offer traditional and Roth IRAs but they claim they might attempt to add personalized 401ks and SEPs in the future.

Once again, you get 10 free trades with the IRA account each month, and if you have both an IRA account and a taxable account with Zecco, you will receive 10 free trades for each account! Pretty damn good deal for only having to park $5000 with these guys.

However, there is a $30 yearly IRA fee. Thus, I would say that you have make at least 6 trades in a given year to justify this fee. However, if you are like most people, you would probably like to dollar-cost-average into ETFs, and Zecco will allow you to do this very easily without being eaten alive by commissions. You could easily be averaging in on an ETF each month share by share if you wanted to!

That sort of dollar-cost-averaging ability is very rare among discount brokers. The only other broker that I am aware of that could offer similar DCA potential is ThinkorSwim, because they offer 3 free mutual fund trades per month, and they offer no annual fee on IRA accounts. If you want to buy or sell traditional mutual funds with Zecco, you will have to pay $10 each way.

Pros and Cons of investing with Zecco

Pro

• 10 free trades/month

• Options with decent if not cut-throat commission rates
• IRAs
• No account minimum
• Option assignment only $4.50 (Option exercise/assignment at most brokerages is often more costly than a typical trade - ThinkorSwim costs $15 for an exercise/assignment)
• Good-priced regular commissions.
• price improvement
• option for 3 different money market sweet funds (tax-exempt, treasury, and standard money market)

Con

• poor reliability of web-based platform

• very costly if you have to call up a broker to make a trade because the web-based platform sucks...
• annual fee on IRA accounts
• SEC regulatory fee when selling shares seems to get rounded up a lot more than at SogoTrade
• no real-time auto-updated watch-list (the one thing SogoTrade has that I really like)
• barely worthwhile charting
• occasionally obnoxious double-login - especially annoying when you have to go through it because your Zecco session timed out just 30 seconds ago and you need to make a trade RIGHT NOW (they time you out after 10 minutes)
• you cannot short certain stocks under $5 that are not marginable - however I have been able to short BPAX and COT both at under $5
• Zecco has free dividend-reinvestment, but without fractional shares - this seems silly to me, why have DRIP but no fractional shares?

Sign up with Zecco and get a free book.

However, I still have a Zecco account, those 10 free trades are hard to pass up, especially considering they give you money market sweep. (Denying you money market sweep is what a lot of deep discount brokers will do in order to provide you with super-low commissions, etc.)

So I've been feeling a bit more positive lately that I might be getting closer to breaking even, and possibly a profit!

Unfortunately my inexperience once again brings me to my knees.

I went long 100 shares of GU at $15.15 per share at 12:16 on 4/4/2008

Using the last after hours transaction price, I am -$125 on a single trade. This is far outside my R value for this trade of about $30. Because I have held the position for much longer than anticipated, the appropriate R value increased beyond my risk/reward tolerance for this trade - an indication I should have exited the trade.

This is a clear sign that I need to be using hard stops more frequently. This trade in combination with others I have been making lately also shows a pattern of not taking profits when I should.

I could have even exited on Friday with a profit in the $15.40-15.50 range when it was failing to break its previous $15.50 high, However there were no clear indicators at that time on Friday.

I became greedy this Monday morning watching the premarket bids and asks, and GU failed to transact much above $16 in the early minutes on low volume - clear sign to exit the trade profitably that I did not take. It would appear the price spike this morning was a short-covering rally which is an ideal point to be selling into. Damn my inexperience!

Even after failing to exit the trade after the morning tumble, I could have still existed at a brief resistance point of $15.50ish that stabilized briefly in the early morning.

Also, I could have exited at an small loss midday today when the price was ranging between about 14.80 to 15.10 - this loss would have made sense to take because of the very low relative midday volume of GU at this point. Yet another signal that I ignored, much to my detriment.

A hard stop at $14.75 would have given me a $40 wound, but that pales compared to the $125 in losses I am sitting on.

One can only hope that as they live, they will learn.

NASD Rule 2520 bugs me sometimes. It's a real mixed blessing. On one hand, it keeps me from trading too much and really considering each and every one of my decisions. However, sometimes I'd like to be able to re-enter and scale in or out. At my current level, I would not allow myself more than 5 trades in 5 business days, but the Pattern Day Trader rule is even more restrictive than that, at its 'acceptable level' of 3 daytrades every rolling 5 business days.

However, if you really want to, you can have the ability to avoid the pattern day trader rule. Simply have more than one brokerage account. Since I already have both a Zecco Account and a SogoTrade account, I can do up to 6 intra-day positions every rolling 5 business days. I don't believe I will take advantage of this fact.

Apparently the reason this is possible is because the pattern day trader rule only applies to individual accounts, not individuals. If anyone knows that this is not the case, please let me know. The only commentary I turned up in a simple web search was on this random website.

March was an interesting month. I saw my losses deepen while I simultaneously started using my 25 free trades up from SogoTrade. It's quite fortunate that I didn't have to pay commissions for this month. When I'm dealing with perhaps twice the size that I'm comfortable dealing with now, it might not be such a big deal.

As it was, I learned this month that I need to size my positions more appropriately so that my trades do not control my behavior. Also, I was using AMD largely as an index proxy, and this methodology started to have no edge as AMD started diverging from tracking the indexes (particularly XLF) and slowly sank beneath the waves.

Worthy of note is that I went into this month holding 300 shares of JMBA long that I originally purchased at $3.05 a share.

March 4, 2008

1. 10:53 Buy 250 AMD @ 6.50
2. 11:50 Sell 250 AMD @ 6.51 Net Gain: $2.47
3. 12:21 Buy 250 AMD @ 6.52
4. 15:07 Sell 250 AMD @ 6.61 Net Gain: $22.47

March 5, 2008

5. 11:50 Buy 100 COIN @ 15.9699
6. 13:10 Sell 100 COIN @ 16.12 Net Gain: $14.99

March 11, 2008

7. 10:36 Buy 300 AMD @ 6.17
8. 11:24 Sell 300 AMD @ 6.27 Net Gain: $29.95

March 12, 2008

9. 11:35 Buy 300 AMD @ 6.61

March 13,2008

10. 10:28 Sell 300 AMD @ 6.51 Net Loss: -$30.05
now there are commissions...
11. 11:08 Short 300 AMD @ 6.50
12. 12:03 Cover 300 AMD @ 6.63 Net Loss: -$48.02

March 14, 2008

13. 12:15 Buy 300 AMD @ 6.45
14. 12:44 Sell 300 AMD @ 6.40 Net Loss: -$24.05
15. 9:48 Sell 300 JMBA @ 2.31 Net Loss -$226.53 (I held this one way too long and should have cut it at <$100 loss. Rookie mistake.)

March 17, 2008

16. 11:15 Buy 300 AMD @ 6.35

March 18, 2008

17. 14:51 Sell 300 AMD @ 6.39 Net Gain: $2.95 (when will the AMD garbage trades stop?)

March 19, 2008

Now we're on SogoTrade... free trades again but no stops! Unfortunately I briefly continue my madness before massaging my strategy into place. I also start trading more than one position at once, which is VERY BAD for my novice state. Henceforth, I will trade only one position at a time. Also, I begin to learn to work with more appropriate position sizing, but not before some mistakes...

18. 11:51 Buy 300 AMD @ 6.30
19. 13:35 Short 300 HALO @ 5.75
20. 15:39 cover 300 HALO @ 6.00 Net Loss: -$75.02

March 20, 2008

21. 12:25 Short 100 CHNR @ 17.20
22. 15:24 Cover 100 CHNR @ 16.95 Net Gain: $24.98

March 24, 2008

23. 10:06 Short 200 VVTV @ 5.81
24. 10:45 Cover 200 VVTV @ 6.10 Net Loss: -$58.02
25. 15:45 Sell 300 AMD @ 6.20 Net Loss: -$30.03

is the AMD madness over?

March 26, 2008

26. 9:55 Short 300 BPAX @ 3.31
27. 11:26 Cover 300 BPAX @ 3.16 Net Gain: $44.98

March 27, 2008

28. 10:34 Buy 100 SOLF @ 13.14
29. 12:08 Sell 100 SOLF @ 13.80 Net Gain: $65.98

March 28, 2008

30. 14:16 Short 300 BPAX @ 4.70
31. 15:33 Cover 300 BPAX @ 4.50 Net Gain: $59.98

Conclusion

From these numbers, I had realized losses of -$222.97 for March 2008. With the addition of $90.09 in realized gains from February, I have lost -$132.88 since I started trading.

However, I must have messed up somehow, because my account balances don't quite jive with my trading journal.

Account Balances
Zecco: $2588.68 (deposits of $2750)
SogoTrade: $2533.40 (deposit of $2500)

So according to this, I'm down -$127.92 - I'm not sure really sure where I messed up my numbers although I do know there's a little bit of money market interest floating around.

Lessons Learned

Only be present if there is opportunity.

If you feel like you need a second opinion on whether to take profit right then and there, TAKE THE PROFIT.

Size positions correctly. Too big and there's too much perceived risk. Correctly sized positions lead to rational decision making.

Also, although I don't like SogoTrade, I do like the little account balance graph they give you.

Thus ends my trading month of March. I would be violating the pattern day trader rule to make a trade on Monday or Tuesday of next week.

I'm realizing a lot of the people coming here are probably wanting to open these accounts in order to day trade or perhaps participate in sucker's rallies, not sure which. (maybe the sucker's rallies are over by now? probably not...) anyways... You can find a link to the day trading chat that I now frequent here. It's skype-based, so keep that in mind. (ez as pie to use but sometimes not so good with firewalls at workplaces and such...)

5/2/2008: SogoTrade now has only a $500 account minimum, and you still receive 25 free trades.

UPDATE: One thing I have noticed about SogoTrade is that it has a good short inventory for a deep discount broker.

UPDATE: go here to see some issues I have had with SogoTrade

If you're having trouble deciding on a broker, this article of things to think about when choosing a discount broker can give you some food for thought.

Although I have been trading for only a couple months, I have opened up two separate brokerage accounts. One is with Zecco, and the more recently opened account is with SogoTrade.

SogoTrade is a very basic broker. They have an excellent pricing structure, but there are only two basic things you can do - buy stock or short stock.

The platform in general caters to the investor that is not particularly active, even though they offer a $1.50/trade with $10 subscription plan for more active traders (versus the $3 trades, you break even after 7 trades in a 30 day period). They currently do not (although they say they will soon) offer stops, stop limits, or trailing stops. (UPDATE - SogoTrade now offers stop and stop limit orders as of 4/11/2008) This is very important, especially when you have a position that you want to manage while you are away from the markets. Also, SogoTrade does not offer IRAs. One perk for long-term investors is that SogoTrade offers free DRIP for most major issues. This could potentially be a great place to store all your dividend-producing ADRs so you can harvest foreign tax deductions.

There is a $2500 minimum opening deposit, and currently they are running a promotion where they give you 25 free trades to use up within 90 days. This is the main reason I decided to open an account. Another reason is that after I use up the 10 free Zecco trades each month, I'd rather pay $3 a trade than $4.50 a trade, and conceivably could pay as low as $1.50-$2.50 a trade. Unfortunately, the limited choice of orders makes using the account somewhat frustrating for my purposes.

I do like their flash watchlist, even if it could be quite better and a bit less delayed. It's interesting, because now that I have 2 brokerage accounts, I have two sources of quotes, and sometimes they don't match up with each other. Sometimes volume numbers will take quite a while to sync up.

one thing to note if you like the penny stocks

For SogoTrade trades of stocks priced less than $1.00, an additional fee of ½ of 1% of principal value applies.

OUCH! At least the limit is $1. TradeKing has its lower limit at $2 for extra commission charges on cheap stocks.

Also, no Pink sheets or OTC BB stocks

one thing that does really bug me about SogoTrade

Their marketing photographs. Am I supposed to identify with these d-bags?

ranked in order of awfulness
• 
  WHY ARE YOU SO HAPPY YOU'RE BUYING STOCK?!

  INVESTING/TRADING IS NOT A FREAKING BEACH PARTY

  take your nice, clean, matching white collared shirts and go home

  and learn how to shave

• 
  If SogoTrade actually has any customers that could have stepped right out of this photograph, please direct me to their residence so I can thieve the valuables that their wealthy parents have provided them with.

  Also, grow some balls dude. Your woman's teats have more testosterone.

• 
  Am I supposed to take it that opening a SogoTrade account will allow me to frolic in the park and on the beach all day? Hope always sells I suppose.

  Also, there is NO WAY that kid came squirting out of these two.

shameless plug

If anyone wants to sign up for a SogoTrade account let me know... I can get 25 free trades for referring you! And you will receive my, uh, eternal gratitude! You gotta meet the account minimum of 2500 and make at least one trade for me to get my 25 free trades. Of course, you also get 25 free trades. think about it! :)

Just click on this link to get 25 free trades when you sign up with SogoTrade, and I'll get 25 free trades too! Best of all it's only $500 account minimum now - it was $2500 minimum when I signed up.

Also, if you want something awfully similar to SogoTrade, but with a few more bells and whistles, check out SogoElite. Many of the terms are similar, however the most important point for me is that if you wish to withdraw assets to the point that your account value drops below $2500, you have to submit an ACAT form or close your account. SogoTrade simply requires a 2500 minimum opening deposit, and you have to keep the money in there for a bit (10 days maybe?) if you want to go and take most of it out later.

However, SogoElite has real charts (it's a software-based account) unlike the garbage that the web-based SogoTrade platform spits at you. That and the stop orders I want is a pretty good deal for just not being able to withdraw your account below $2500.

SogoElite is also for active traders - you can receive free real-time data on the basic plan if you make at least 10 trades per month.

It's March 11, 2008. The Dow has had its biggest gain in over 5 years, rebounding heavily after a report by the feds that they are adding liquidity.

As usual, I tried playing AMD. I realized a paltry gain of $30, buying 300 shares for $6.17 at 10:36 and selling for $6.27 at 11:24 - however I missed a lot of potential gains in this spike. I should have held on for a bit more in gains. $50 would have been the max profit for this particular trade. If you notice, I missed seeing the last big volume spike up to 800,000 that capped off the initial buying spree.

If I didn't have to deal with that pattern day trader rule, I would have likely re-entered at the inflection point you see in the graph below. I find that using a market index or two is very useful as a point of divergence/convergence for an equity price, with the index typically leading except at points of market confusion.

The reason I got out of the AMD trade so early was because of the downtrending index, and I didn't see the second volume spike in that rally until too late. I was too skittish and quick to take profits.

Either way, I should have simply held on to my AMD until late in the day, the gains were quite astonishing. Bear market rally? My potential profit was somewhere around $90. Since I only realized 30 of those dollars, I have $60 of opportunity cost. Therefore I am -$30 for the day. Hopefully, I can stop losing and break even (or more!) at some point.

you gotta have an edge

The opportunity cost represents the edge that I missed out on. If I have a negative profit after factoring in opportunity cost, I have obtained less than half my available edge.

This is on a trade where I didn't lose money - statistically likely to be only 50% or less of my trades. Half of my edge is the bare minimum.

If we assume that I should have re-entered, I left on the table another $75 or more of gains considering my position size. Where's my edge? I barely have a toehold.

The market was out of control today, and on two trades that I saw - only one of which I acted on - I could have made $125. I walked away with less than a quarter of that.

words of wisdom from Brett Steenbarger

Dr. Brett tells us how we cannot equate market movement with opportunity, and to do so leads to wasteful perfectionism.

Although it might appear that I am doing exactly that, I assure you I am not. My primitive trading system, although still in its infancy, provided me with the ability to gain at least some of the available edge out there in terms of the entries that I identified.

I don't expect to participate in every market move, far from it. In this instance however, I had a reasonable belief that there was to be an imminent move, and I did not act on it. This represents true loss of opportunity; in trading, this only occurs when we identify a transition point and fail to act on our ideas.

More wisdom from Dr. Brett regarding 'the edge'.

Choosing the appropriate discount brokerage house for you investing/trading needs is next to impossible. The only practical way to narrow down your choices is to apply some strict filters. The first few questions to ask yourself might include:

• Is this for an IRA account?
  • This should be the first question to ask. Your activity and strategy may differ significantly in an IRA account, and the type of broker that is a perfect fit for your taxable account(s) could very well be the worst choice for your IRA.
  • Typically, IRA accounts are assessed an annual fee, and if you terminate your IRA account, there is generally an additional fee. Also, different brokerages have different rules regarding what products and combinations IRA accounts are allowed to trade.
  • Think or Swim and TradeKing are two brokerages that do not charge annual IRA fees.
  • Rule of Thumb: Is the IRA annual fee greater than the amount of commissions you expect to pay for the year? For example, TradeKing has no annual fee, but costs $4.95 per trade (+$0.65 per option contract). MB Trading on the other hand has a $35 annual fee, but most of the equity and option trades I would perform would cost no more than $1 per trade ($0.01 per share on equities, $1 per option contract). Assuming 3 trades per month, MB Trading quickly wins out at $71 a year, while TradeKing would cost ~$178 a year. However, if you are only going to be making 7 trades a year, TradeKing would be less expensive at $34.65 a year vs. MB Trading's $42/year. If you're going to be doing only 1 or 2 trades a year, the clear winner emerges.
• What size of account are you going to open?
  • You might like Interactive Brokers for their dirt-cheap fees, but do you have $10,000 for the minimum opening deposit?
• What products do you wish to trade?
  • Equities, Currencies, Futures, Stock Options, Futures Options, Single Stock Futures?

  • If all you want to do is trade equities long and short in blocks greater than a few hundred shares, your best bet is SogoTrade with flat $3 commissions up to 5000 shares. (you can also get $1.50 trades with a $10 30-day subscription) However, despite these excellent prices they do not offer any other products.
• What position sizes do you wish to trade?
  • many brokers operate on a per-share or per-contract commission basis, and give discounts for volume
• How is your broker going to accommodate your data/analysis needs?
  • Interface to a third-party tool vendor? Who or what is managing your data subscriptions?
• How active will you be in trading?
  • Interactive Brokers will waive all monthly data fees if you do >$30 worth of business in commissions with them each month, but requires that you spend a minimum $10 each month in trading fees otherwise
• Are you interested in OTC/Pink sheet trading?
  • Personally, the shark-infested waters of NASDAQ small caps are as close as I want to get to OTC.
• Do you prefer a software-based system? Do you need a direct access brokerage?
• How easy is it to close an account if you are not satisfied?
  • This is probably the hardest question to answer by analyzing a brokerage's promotional materials.
• Do they offer a money market sweep?
  • This is 100% essential if you intend to keep sizable cash positions in your portfolio. Although Interactive Brokers and SogoTrade have very deeply discounted commissions, they do not offer a money market sweep option and give extremely anemic interest rates on spare cash - if you get a whole percentage point on your spare cash without a sweep, you're doing pretty good.

  • I find this to be a particularly important feature for someone just starting a self-directed IRA account. This allows them to pool cash in their account that will earn interest while they wait for an advantageous time to buy shares (i.e. when the percentage of the cash pool paid in commission on a trade is low enough to justify the activity). In this manner they can painlessly add to their account week-to-week or month-to-month with small contributions, but avoid the transaction-cost inefficiency of attempting to dollar-cost-average with each new cash infusion.

The choices for taxable accounts mostly have to do with your unique needs, but it seems to me that an IRA choice is mainly focused around cost reduction. So what are your goals?

IRA possibilities

1. Limited starting capital (<$2000), low activity (<5 trades a year), equities only

I highly recommend TradeKing in this situation. No annual fee, no minimums, and a default money market sweep. It also leaves open the possibility of a hedged portfolio when the account has more capital.

2.Somewhat higher starting capital (~$5000), hedged portfolio (equities and options), 3-4 trades a month

I would most likely recommend MB Trading to this person. They have an excellent offering of money market sweep funds and very reasonable per share and per contract commissions that more than make up for the $35 annual IRA fee as compared to a brokerage like TradeKing or Zecco.

3. Starting capital >$2500, equities only, strong desire to dollar cost average, possible use of options, 10+ trades a year

If you have limited capital, but more than $2500, and you really, really want to dollar cost average in an efficient manner, Zecco is the brokerage for you. As long you have >$2500 minimum account equity they will give you 10 free equity trades each month. Options will cost you however, which is why I would likely not recommend this broker to someone that wishes to pursue a more complicated/hedged strategy. For the pleasure of 10 gratis trades a month, you will pay a $30 annual fee, which is very reasonable. Zecco also offers a money market sweep option, but since you don't really have to worry about transaction cost inefficiency, it becomes less important. As long as you have enough money in your account to buy a single share of something, you're good to go!

Just some thoughts, researching these guys is a pain! Baskin-Robbins has nothing on brokerage houses.

Recently, I decided to open a brokerage account with Zecco. They offer 10 free trades a month if you have at least a $2500 balance. Because I wanted to try stepping into the shark-infested waters of day trading, I figured this would be a good way to get a little experience while minimizing my commissions. After you use up your 10 free trades, it is $4.50 per trade. Due to the amount of capital I deploy on a trade, that $9 on a round-trip would eat up almost all my profits.

However, being able to make 5 free round trips each month is pretty good, especially considering the 'pattern day trader' rule. You can only make about 12 roundtrip intra-day trades each month. You can hold positions overnight as much as you want, but I'm mostly interested in the intra-day action.

Currently, I employ a long-only strategy. I am converting my account to a margin account to play the other side of the market - it is essential for an intra-day strategy.

basic info for trades in February 2008 (roundtrip delta includes commission and transaction fees if applicable)

• 2/01/08 11:17 Buy 500 CBOU (Caribou Coffee) @ $2.828 Net: -$1414
  • 2/04/08 9:30 Sell 500 CBOU @ 2.95 Net: $1474.95 Roundtrip delta: +$61.95
• 2/01/08 11:26 Buy 300 JMBA (Jamba Juice) @ $3.05 Net: -$915
  • Position still open. JMBA currently @ 2.51 per share. Current delta: -$162

• 2/07/08 11:53 Buy 200 AMD @ $6.44 Net: -$1288
  • 2/07/08 12:17 Sell 200 AMD @ $6.50 Net: $1299.97 Roundtrip delta: $11.97

• 2/08/08 10:35 Buy 200 AMD @ 6.47 Net: -$1294
  • 2/08/08 2/12/08 12:26 Sell 200 AMD @ 6.36 Net: $1271.97 Roundtrip delta:-$22.03
• 2/12/08 12:07 Buy 200 AMD @ 6.51 Net: -$1302
  • 2/12/08 12:17 Sell 200 AMD @ 6.5601 Net: $1311.99 Roundtrip delta:$9.99
• 2/15/08 10:49 Buy 200 AMD @ 6.54 Net: -$1308
  • 2/19/08 10:22 Sell 200 AMD @ 6.70 Net: $1335.47 (commission to sell - no more free commissions this month!)Roundtrip delta:$24.47
• 2/22/08 11:15 Buy 230 AMD @ 6.66 Net: -$1536.30
  • 2/22/08 11:27 Sell 230 AMD @ 6.71 Net: $1538.77 Roundtrip delta:$2.47
• 2/27/08 11:56 Buy 100 AMD @ 7.24 Net: -$728.50
• 2/27/08 12:00 Buy 130 AMD @ 7.25 Net: -$947
  • 2/27/08 12:43 Sell 230 AMD @ 7.31 Net: $1676.77 Roundtrip delta:$1.27 (I paid $13.50 in commissions for this roundtrip because I modified my partially filled limit buy in order to not be stopped out of the trade. This proved unnecessary.)
• Total Commissions for February 2008: $27

So my realized profit is $90.09. However, I am sitting on -$162 in paper losses on my JMBA position, bringing my total realized and unrealized delta to be -$71.91

There were a two points I could have cashed my JMBA position out and been sitting on $50-20 worth of profits. There was one point this past week I could have closed out the position and been sitting at about $10 of realized gains. Given the market conditions, I feel I did reasonably well. Given the market conditions, I should not be holding onto that JMBA stock. I should have closed the trade a $20-30 loss on that same day I bought it. You live you learn. Rightly or wrongly, I have chosen to ride out my decision on JMBA. However, I will likely close out the position at the end of the year even if it is a loss, in order to possibly better my tax situation (this would make my JMBA losses count as short term capital losses for 2008).

Lesson? Don't keep an open position on a micro-cap stock that's just mostly trending with the current bear market. As an aside, $2.50 is an excellent price for JMBA, one well below book value at a P/E of around 7.8 - unfortunately I bought at the height of a bear market rally, and have not seen the price of JMBA crawl back to even $3 yet.

All in all, not a bad start to trading considering the current market environment. I just wish I could have gone into March without depositing a little bit of extra money in order to get the 10 free trades from Zecco in March. Conceivably my JMBA could spike and I could get the free trades, but I'm not going to bet on it. (Zecco just requires that at one point during the month your account be >=$2500, if it is, you get 10 free trades that expire at the end of the month.)

Paying commissions = murder!

Even though I executed 3 profitable AMD trades while paying commissions, the two trades where I payed round-trip commissions have miserable profit margin. In part, this was psychological in that I wanted to make sure I wouldn't be paying just for the pleasure of making these trades, so I tended to cut my profits a bit early - although one of them was a perfectly executed scalp in the long direction during bear conditions that pulled out almost the maximum profit.

It's worthwhile to note that if I had simply initiated the very first AMD position of 200 shares @ $6.44 and kept it until this last friday, I could have easily sold the lot for $7.20+ a share, netting a profit of $152. My system, particularly in this turbulent market, does not give me such distant insight into stock prices. I am only able to trade my beliefs about the market.