Podcast – Episode 002 – Do Not Marry Your Broker
Hello there, Genius nation. How’s everybody doing today? I hope you are having a wonderful day as I am. Great time to be alive. Great era to be alive. I think this is one of the most wonderful times in the history of mankind with all of the technical advances and all the things and air conditioning. Jeez, I love air conditioning. Can’t live in Texas without air conditioning, but today, what I wanted to talk about is brokers.
As traders, we can’t do anything without a broker. I still remember the days when I was in college at Florida State and I wanted to trade stocks. That was the thing I wanted. I wanted to get rich, obviously. My whole life, I wanted to get rich, and I wanted to trade stock. I still remember the stock I traded. It was called, I didn’t even know by the name of it, the symbol was LANTF. That stock made me a lot of money in college. I wanted a broker, but at that time, they had just come out with discount brokers, but they didn’t have, I mean, we had, I guess, kind of had Internet at that time in, this was 1994. I don’t know if it was, it wasn’t, like websites weren’t there, and so this broker that I was using, they had just come out with this whole new brand new awesome system where you could enter your orders with a phone.
You would call their order number, and it would ask you questions like, “Type in your account number,” and you would type it in with the phone. Then it would say, at that time, we had push-button phones. We didn’t have cellphones like we do now, smartphones, and so then we had to enter the digits of the stock that we wanted to trade, how many shares, what price or that, and just send it in, and the order would get filled pretty quick. That was the cutting-edge technology of the time.
Nowadays, man, jeez. Nowadays, you take your laptop, you take your phone, your iPad, whatever you got, you can trade from literally any corner of the world. Literally anywhere in the world almost if you can get a reception, you can get Internet’s reception. Recently, I just got a service that’s a Wi-Fi service, and you plug it in to your laptop, and you can get a Wi-Fi signal just about anywhere in the US. I mean, literally anywhere in the US. I looked at their map, and I’ve tested it. You can go to the beach, you can go to some secluded island, and you can still get Wi-Fi reception. You could still trade. It’s amazing. Forget the name of it. I’ll share it later, but great stuff that you can do right now.
Part of the reason I wanted to talk about brokers is, I mean, having the wrong broker is like trading with one hand beyond your back. I mean, your broker is, and they’re supposed to be your partners, in a way, not really. I mean, they’re a service. They provide a service, they provide us access to the markets, and then in order to get our business, they should be doing things that we want them to do. They should be giving us tools, they should be giving resources. Obviously, the more stuff that they give us, the more that we’re going to like them, the more people are going to go to them and use them. Brokers make their money on commissions, but obviously, the bigger the broker, they have other services as well. They also make money on the interest rates from our funds that are sitting in their accounts that we’re not using. They also get money from margin for using, buying stocks and borrowing money from the broker. Those are pretty high interest rates themselves.
Brokers do really well, and they make a lot of money from us, especially the more and more people are trading options nowadays, the individual investors, the people that are realizing that, “Hey, you know what? Giving my money to this financial planner or this mutual fund or whatever, it’s not getting the job done. I’m paying all these fees and whatnot, and I don’t have any control over money. It’s better to have control of our money. Let me do it myself.” More and more people are waking up to that reality. More and more people are waking up to that realization.
The first thing is, “Hey, I need a broker. How do I get a broker?” and they ask around, and, “Oh, this is a good broker,” and the first thing people look at are the fees. “Let me go find a cheap broker.” That’s the first thing, and I gotta tell you that price is not everything, especially when you’re starting out. When you’re starting out, you don’t want to go to the cheapest broker. You want to go to the broker that has the best reputation and the best tools for a new investor.
After you know what you’re doing, after you know what you need and what kind of tools you want, then you can go to another broker and then you can find a cheaper broker, but in the beginning, if you’re just starting out … If you’re just going to do trade stocks, then every broker is the same. You’re going to do your own research, buy and sell, you’re going to get your ideas from somewhere else, any broker is the same. If you’re paying … Recently, the bigger brokers, they just dropped their commissions, and it was such a big deal. They were like, “Oh my God. We used to charge $10 a stock trade. Now we’re only going to charge $6. We’re just giving all of this stuff to people away for free.”
I’m like, that kind of blew my mind because I haven’t been trading more than, I haven’t been paying more than $4 for, or $5 for a stock trade for over a decade, so the fact that some of these larger brokers are advertising on TV that they’re going from $9 to $6 or $9 to $5, it’s not a big deal. I mean, the broker that I use most of the time is TD Ameritrade. I used to … I love the thinkorswim platform, and so TD Ameritrade bought thinkorswim, which used to be an independent broker. TD Ameritrade, I was getting $5 because they bought thinkorswim, but somebody else that went to TD Ameritrade and opened account, I mean, they were paying like eight bucks or nine bucks for the same exact trade.
The one thing I want you to take away is that all these commissions are negotiable. If you don’t like what you’re paying now, if you think you’re paying too much, contact your broker and say, “Hey, you guys ripped me of. I want to pay less money, and if you don’t, I’m going to switch,” because there are hundreds of brokers out there. They all want your money, they are all hungry for money, for income, for more customers. They will bend over backwards. They should bend over backwards to help you out and to get you as a customer.
Even if you don’t have hundreds of thousands of dollars, if you do, then it’s a no-brainer, you should get much lower fees, but if you have a few thousand dollars, you’re just starting out, they still want to keep you because you’re going to grow. You’re going to make more money, you’re going to put more in your accounts, and you gotta let them know that, say, “Hey, I’m just starting out. I’m testing it. If you guys are going to treat me right, I’m going to stay with you for a long, long time,” because they know that each customer, they can make hundreds of thousands dollars off of you in your lifetime, especially if you’re an active trader, so it behooves them to be nice to you and to give you the best deal that they can. It’s really crazy if you don’t, if you do not negotiate your commissions.
That’s the first thing that I want to stress, really importantly, that you need to negotiate commissions. No matter what broker you have, no matter how good a price you think you have right now, you can probably do better, and if they say no, no harm done. You lose an email or a phone call. No big deal, didn’t take much of your time. It’s kind of like the cable bill. If you call them up and you say, “Hey, I’m going to cancel,” they’ll lower your rate. Everybody knows that, we just don’t do it because we’re lazy. Speaking of which, I need to call the cable company.
Part number two. We already talked about price, we already talked about negotiating on price. The other thing I want to talk about is a question that comes up … Actually, people don’t really realize it, but you can have as many brokers accounts as you need. There is no magic number that you should only have all your money at one broker and all of it in one account, or two brokers or three brokers or six brokers or ten brokers. There’s no magic. It’s whatever you need, whatever fits your trading style.
For example, I have several accounts at TD Ameritrade right now. I have an account at what is now E-Trade. They used to be at a different broker. I forgot what it was called, Option Monster? Option Trader? tradeMONSTER? tradeMONSTER. That’s what it was. It used to be tradeMONSTER. They got bought by OptionsHouse, and then OptionsHouse got bought out be E-Trade. I’ve had the same account. It just goes from company to company. I don’t know yet what changes E-Trade or what benefits E-Trade have. I like my own system, the old one was fine for me, but I’m with them because they’re giving me a really good rate, which is 50 cents per option. It’s like 3.50 or $4, I think, per stock trade. Those are really good rates. I got those a long time ago, and I’ve kept them, and I like them so I’m still there. I still have that account. It’s a really big account.
I also have an account at Fidelity. They’re not what I would consider an option-friendly broker, and I don’t really trade options there, but I really like their research tools for in terms of retirement planning and research into stocks and fundamentals and what not. I like how their layout is. I like how easy it is to look around and find the information. I’m sure the other brokers have that same stuff too, but I’m not familiar with it, and I don’t want to learn the new system, so I’m with Fidelity, and I use their stuff.
For me, thinkorswim is the platform that I am the most familiar with, the most comfortable with, and it has everything that I need, and so I stay there. If I find another broker that has better tools, better software, I might switch over there. I mean, obviously, customer service is a very, very big point, so you want to make sure that your broker is large enough to handle volume in terms of trades, but also in terms of customer service volume because if we have, let’s say, another flash crash when there are millions and millions of trades happening at the same time, will you be able to pick the phone and get to your broker or will your broker system crash?
When we did have the flash crash a few years ago, many broker’s systems went down. You couldn’t log into your account. You didn’t know what your account balance was. You couldn’t make any trades because they had just too much volume hitting their servers, and they just crashed, so you have to be with a big company so that it can handle that kind of stuff, but you probably don’t want to be with the biggest, biggest company because they charge too much in commissions, so you gotta find the balance.
That’s the one thing is I do not want you to marry your broker. Nowadays, maybe marriage is not the right word because everybody is, people get divorced anyway, but it’s not a life-long commitment that you are making when you choose a broker, and so when you are first starting out, I don’t want you to get hung up over finding the best, best, best, best, best broker. Just find a broker. Open an account. Start paper trading. Start trading. Get your feet wet. Learn the trades. Learn your strategy, and then as you are making money, you can spend some time and say, “I want to find a better broker,” because that’s not …
Let’s say you’re starting to trade. You shouldn’t be spending two days trying to figure out what computer system you should buy. It doesn’t make that much of a difference. Computer is a computer is a computer. You could have a Dell, you could have an HP, you could have Microsoft, you could have whatever, Apple, I don’t care. Your computer is going to log in to the same Internet. Just like the broker, they all log in to the same markets, and so pick one, start doing it, pay attention to the important stuff.
The broker, again, having the wrong broker is like having one hand tied behind your back. Trading is hard enough as it is. You don’t want to make it any harder than it needs to be, but that being said, you shouldn’t be agonizing over what broker you should use, and there are plenty of places where you can find recommendations of brokers. I mean, on our website, the optiongenius.com site, on the blog, one of the most popular, popular blog posts that I’ve ever written was about brokers, and it was about which brokers are option-friendly and which brokers are not. When it comes to finding a broker, in the beginning, I’m saying, “Hey, find any broker that other people are using.”
For example, if you’re going to be selling options or getting into options, ask a few people. Come into our Facebook group. We have a new Facebook group that we put out. It’s called the Option Traders Alliance. It’s free. You can join it. If you don’t have the link, just email us at firstname.lastname@example.org. We’ll get you the link. Join the group and ask, put a question, say, “Hey, what broker is good?” and you’ll get a list of so many different brokers that people use. Pick one, open an account, get started.
We had a guy, I don’t want to say his name, but he was a member of our Blank Check Trading System. There is where we, Blank Check is where we trade oil options. In order to trade oil options, you need to have a broker that, number one, allows you to trade options, and number two allows you to trade futures because we’re trading the options on the futures.
He joined the group, and he picked one particular broker to work with, and he was emailing me for, I think, seven or eight weeks. Every week, he would email me, “Hey, my account’s still at this broker’s. They’re not opened yet. I’m still working on it.” It’s like, okay, great. Thanks for the update. The week, send me another email, “Hey, my broker, they’re still working on some stuff. I still have to get them some of the papers.” Okay. Third week, “Hey, they still haven’t approved me.” Fourth week, “Hey, I’m still working on my … ”
Then eventually, I was like, “What are you doing?” but like, man, if they’re not opening, if it’s taking you over a month to open an account, find different broker. They’re not right for you because if they’re … We want to give them our money. They want our money. We want to give them commission. They want … That’s their business. If they’re saying that they’re not going to open your account or it’s been taking that long because they’re asking for all these little details and nitpicking and all this stuff, man, go to the next broker. Just say, “Next.”
Look online, type in “best option brokers,” and there’s, you’re going to find a list of thousands of them, or maybe not thousands, but you’ll find thousands of lists of which are the best brokers, and I’m sure you could pick the top ones that are there because they keep changing. New brokers come, new brokers go. The good ones eventually, or the smaller ones get eaten up or merged with or bought by the bigger ones.
Thinkorswim was a great broker. They were started by a couple guys who used to be floor traders, and they really said that, “Hey, you know what? We’re going to try to get things going for the little guy. We’re going to, for the individual. We’re not built for the big, institutional, hedge-fund type big, massive players that have million and billions of dollars. We’re going to build a platform for the little guy and give them all the tools and take all the tools and strategies and technical prowess that the pros have access to, but we’re going to give it them for cheap and free.” That’s why I really love the thinkorswim platform because it is free. It has live data. It has up-to-date, what is that called, streaming data up where it’s not delayed. It’s realtime data, and that is all free if you open an account, so if your broker is not giving you free, realtime data, that’s something you probably want to have.
Let’s say you’re at broker A. They don’t have realtime data, or they don’t have the right software package, but you really like broker A, but broker B is offering all that stuff for free if you have an account, a funded account, well then, you don’t, I’m not telling you switch to broker B. I’m telling you to open an account at broker B. Keep your main account at broker A. Open an account at broker B, put some money in it, put a few hundred bucks in it so that it stays open and they don’t charge you any fees or whatnot for not trading, but you don’t have to trade in there. You could use the tools that they have, and then you make your trades at broker A because let’s say, maybe the commissions are better or maybe, whatever reason, this customer service is better.
That’s why you have multiple, multiple accounts. At one broker, you might like the customer service, at the other broker, you might like their tools, at the other broker, you might like their charts or their research. There’s no law that says you cannot have an account at more than one broker. That’s what I’m saying. Don’t marry your broker. Cheat on your broker, have other brokers, have a side broker. Have two side brokers. Have your mistress broker, I don’t care what you call them, but you can have them. Have more than one. Do not trade with your hands tied behind your back. Use the brokers. Don’t let them use you. Don’t let them tell you what you can and cannot do with your money.
If your broker does, “Yeah, no, you, we don’t allow you to do this. You’re not approved.” Well, then go find another broker that will approve you, and then say, “Goodbye,” to the stupid broker. It’s your money, you should be able to do whatever you want with it, and if it’s to make stupid trades, and if that’s to blow up your account, well then you have that right. It’s a free country. You have the freedom to do so, you should have the freedom to do so because it is your money. It really pisses me off when people tell me, “Oh, my broker won’t let me do this in my account, my broker won’t let me do that.” “Well, why not?” “Oh, because I don’t have … ” whatever reason. “I don’t have enough money.” “I don’t have enough net worth.” “I don’t have enough experience.” Hey, man. It’s your money. It’s your account. Find another broker that will let you do it.
The only reason that brokers do not do that because they need to cover their butts. They need to cover themselves in case you turn around and sue them for letting you make trades that you didn’t know how to do, and that’s a sad state of affairs, really. I mean, that’s, like, I, we could blame on the lawyers for that one, but the broker has to limit you to protect themselves. It’s not in your best favor. That’s their thinking about protecting themselves.
They don’t want to have lawsuits, so if you’re a little guy with a little bit of money, they’re not going to make that much money off of you, so they’re thinking, these are probably the bigger brokers. They’re not going to make that much money off of you, you’re just another person, so they’re going to limit you and say, “No, no, no, no,” because if you have $2,000 in your account, and you go and you lose it, you can go find an attorney to go sue them. Then that guy is going to try to make a class-action out of it, and if the broker loses, that’s millions of dollars that they have to pay out to people who shouldn’t have been doing what they were doing anyway.
It’s just the state of affairs that we live in, but there are other brokers out there, so if one broker says no to you, even if you’re a small account, you can find other brokers that will help you, and really, if they say no … Let’s say you fill out their online application, you want to trade futures or you want to trade options. You’re looking for approval for that, and if they say no or they don’t let you trade at the level that you want because for options trading, brokers will have different levels, so at level one, you can do XYZ trades, level two you can do this stuff, level three you can trade other things, and level four, you can trade everything or something like that, depending on the broker, how they break up the levels. They might be three levels, four levels, five levels.
If they say, “You have an account. We’ll let you trade, but we’re only going to let you trade up to level two,” and if you don’t want that, if strategy you want to trade is a level three strategy, well, then get on the phone with them and tell them, “Hey, look. This is what I want to trade. This is why I want to trade it because I’m taking a course. I’ve taken this course the Option Genius or I’m part of the membership or I’m learning how to do this stuff,” and so if that’s what you want to do, then you get on the phone with them. You call them, and you say, “Hey, if you don’t let me, I’m going to do it somewhere else. I am going to be trading whether it’s with you or it’s with your competition, but I will be trading and this is what I want to trade. If you let me do it, great. If not, you can probably close my account, and I’ll move somewhere else.”
We covered a lot of stuff in this version, this issue today. First, I don’t want you to be married to your broker. I’m just going to sum it up here. You could find great brokers. There are many of them. There used to be a division between brokers that were just stock brokers and brokers that were what I called option-friendly where they would let you trade whatever strategy you want. They had the proper tools to let you analyze your trades, check for any deviations, check the data and the gamma and the different Greeks. All that should be very easy to find, but nowadays, the option-friendly brokers, which were a little bit smaller, they’ve been gobbled up. thinkorswim got gobbled up, OptionsXpress got gobbled up, tradeMONSTER got gobbled up by OptionsHouse, and OptionsHouse got gobbled up by E-Trade. I believe TradeKing just got bought out by another broker, Ally, I think? Ally was a bank, but now they’re in the brokerage business. Go figure. All these guys that were option-friendly brokers got bought out.
Now, I was telling you the story about the thinkorswim, the two guys who made thinkorswim, or I don’t know how many there were, but two of them come to my mind, Sheridan and Sosnoff I think their names were. They started thinkorswim. They bought a company called Investools or maybe Investools bought them, I don’t remember how that worked, but thinkorswim was still the platform and the broker, and then they just got bought out by TD Ameritrade, and it was a little while ago, so that whole thing is gone. When you sell out to a big company, when you have a company and you sell it to a much larger company, you get a big payday, so these guys got paid big time. Mega, mega millions, but they also build in what’s called a non-compete clause, so it pretty much, it seemed that like these guys shared in the Sosnoff, they had to work or stay in a way where they could not be competing with Ameritrade for a certain amount of time.
Now, I think that time has expired, and so that’s why they’ve come out with a new broker called tastytrade, which everybody … They don’t have all the tools and everything that thinkorswim does, but they are very aggressive right now in their pricing. I don’t know how long that’ll last, but they say that they’re very aggressive in their pricing, so if you’re looking for broker, check out tastytrade. They’ll actually, they even, they’re giving out commissions out as well to people. Not commissions but affiliate commissions so you’ll see a lot of videos and ads run by other people saying that, “Oh, hey, I’m reviewing the new tastytrade platform, the new tastytrade broker. If you want to join, click on my link below, and you can go over to them,” and that link is actually an affiliate link. If you click on that link and you go to tastytrade and sign up, that guy who made the video, he gets some dollar amount. I don’t know how much it is. He gets something for it.
Be careful of any of these reviews online that you see. That’s something to be aware of. If somebody’s just talking about great, great things about any broker without telling you the negatives of the broker, then you want to stay away from that because every broker has their cons as well as their pros. Some are good at one thing, some are good another thing, some suck at some stuff, so that’s why, that’s another reason why you should have more than one in your arsenal.
It’s kind of like hey, I’m a gunslinger, and I’m going into battle like I’m from the Old West. How many bullets am I going to have, or how many guns am I going to have? If one gun stops working … the server goes down, I can’t place any trades, they close my account for some reason, I still have my backup gun or my shotgun on my back or another gun on my horse that I can take out and start slinging with, that I could still start trading with. That’s something else that doesn’t happen too much, but yes, you can get your account shut down at a broker. If you’re only familiar with one broker, if you’re only familiar with one platform and they shut you down for some reason, then it’s going to take you a while to get back up to speed at another broker. That’s another reason you should have.
There are many, many different reasons. I think we’ve covered at least four or five major reasons why you should have more than one broker. If you love your broker, if everything is fine, if you like all their tools, if everything’s going great, that’s great. Keep your majority, your money there. Have a backup. Have a backup, or at least if you have the time, then look into other brokers and see. Maybe somebody can offer you a better deal. Maybe they have some new technology that they’ve come out with that’ll work better. You never know.
I mean, there’s one broker that we work with that is, for some reason, when you are trading on their platform, it doesn’t tell you how much money you have left in your account, so I don’t want to give you the name of the broker, but if you email us, we’ll tell you. They don’t tell you how much margin you’re using. If you’re trading in an options account, if you’re trading options, let’s say you’re trading naked puts. If that’s what you’re trading, that’s the only trade you have in your account, that could vary, your margin could vary based on the broker.
Ah, hey, that brings to mind another thing. The margin requirements are different at different brokers. This is something that people don’t realize, but if you’re trading naked futures or naked options or anything that requires margin, and this is not stock margin where you’re borrowing the money, but this is something that’s not a spread. In a spread, you know exactly what the margin is, and you should know, and it should be the same from broker to broker, but if you’re trading, say, naked calls, naked puts, something like that, that margin amount could vary.
For example, I’ll tell you, from the futures options standpoint, I can go into my thinkorswim account and sell oil options, like say I’m going to sell all oil or any commodity, really. I could sell one call option or one put option, and it’ll cost me a certain amount of money for margin, and that amount is going to change every day, so it’ll tell me at the top how much margin am I using? That’s a very important number that you need to be aware of if you’re trading.
This other broker that we were working with, their platform doesn’t show you that, so you really don’t know how much leeway you have in your account, and that could hurt you big time. If you overtrade, if you have too many contracts on, you could blow up your account and not even know it because the broker’s not telling you that very, very important piece of information.
Now we have a different broker that we have started working with. It’s called DeCarley Trading. They are a futures-specific broker, so if you’re trading futures or futures options, there are brokers that only do that. They don’t worry about equity options. They don’t worry about stocks, bonds, all that other stuff. They focus on futures, so if I want trade a futures option on oil or gold or lumber or whatever, if I do one trade in my thinkorswim account or if I do one trade at the DeCarley Brokerage account, the margin will be different just because the people at DeCarley, they have a much, much better idea of what I’m trying to do, the strategy that I’m using, and they’ll work with me because they’re smaller, and they want my business.
The people at thinkorswim, to them, I’m just another account, or several accounts, but still, the guy on the phone or the guy in risk management might not know what I’m trying to do. He might not be a trader. He might not be trained. Normally, the people in risk management are going to be accountants or attorneys, and their first instance is to say, “No, charge him more.” My margin is probably going to be higher at thinkorswim than at DeCarley. If I wanted to, for the same amount of money in my account, I might be able to do more contracts at one broker versus another. That is something that you also need to worry about, or not worry about, but you also need to investigate.
Portfolio margin, for those of you who have an account in excess of $125,000, you can get portfolio margin. Some brokers offer it, most brokers offer it. Some don’t for some reason. They don’t offer that. That is something you should also be looking at. Most of the accounts out there are called Reg T account, but if you have over 125,000, you can apply for what’s called portfolio margin, and then you’ll be paying a lot less in margin for trades that have unlimited, so-called, unlimited risk like a naked put or a naked call or something of that nature.
Again, don’t marry your broker. You can have more than one. If you’re just starting out, pick one that you find that’s a good one, that other people are using, that you can do the trades that you want to do on, but if your broker is saying no to you, if your broker’s limiting you, if you’re like, “Man, I wish my brokerage account would give me this information,” there’s probably another broker out there that does.
I find that I don’t really have to pay for a screener, like an options screener or a trades screener. I don’t have to pay for a charting platform to draw charts. I don’t have to pay for an analyzing software that can analyzes my trades because it’s all part of brokerage software, and it’s all for free. I don’t have to pay for data and realtime information because it’s part of my brokerage. It’s part of my brokerage account. There’s no extra charge for that. That’s why I like thinkorswim. It’s part of that. At other brokers, it’s a different story. I use brokers instead of them using me. I keep my money where my commissions are low and where they give me all the tools that I need, and that’s, I think, what you guys should have. When it comes down to it, how many accounts should you have? You should have as many accounts as you need, as at many brokers as you need. Spread the love around.
All right, folks, so that’s it for this issue. Remember to always trade with the odds in your favor. Peace out.
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