Paying Trade Commissions Gives You An Edge: Here’s How
At Cobra Trading, we believe that having direct access to the market gives our clients a competitive advantage. That’s why they trade with us instead of turning to the big box brokers.
Big box brokers create a “buffer” between a trader and the market. In turn, your order gets processed as opposed to going straight to the market.
Once the order is in the buffer, it gets stopped there, and two things can happen:
In the best-case scenario, it gets traded in-house. Say, Trader A tries to sell a stock at $1.50, and Trader B is trying to buy the same stock at $1.50. The system creates an internal trade that never leaves the system. This way, both orders get processed relatively quickly.
But if there are no matching orders, then it gets sent to the market. However, it gets actualized only when it benefits the broker, meaning that the broker may wait for a rebate so that they can provide a free trade for you.
Typically, it doesn’t take too much time. Most often, the delay lasts only several seconds or so. But in day trading, timing is of the essence. A couple of seconds can make or break your trade, especially if you are a momentum trader or a scalper. In that case, having direct access and being able to execute your trade within milliseconds is a huge competitive advantage.
Any day trader knows the importance of timing. You want your executions to be based on your strategy and stock market signals, not the broker’s rebate availability.
Imagine the impact these delays will have on your account over time. With some trades, you may find yourself in a position where the entry point is now wrong. Next thing you know, you are chasing a stock, and your risk-reward ratio is completely skewed. This is how traders lose out on trades that should have been a no-brainer.
In other situations, you may incur the opportunity cost of missing a trade altogether. If you know that timing may not work out in your favor, you may choose to sit out a trade that would need to happen on a quick timeline.
So if you rely heavily on seeing your signal, and if executing a trade quickly is important to you, signing with a direct access broker will be extremely beneficial to you. This may be a bit less of a priority for swing traders, but there are more things to consider when choosing a broker. For example, our swing trading fee model is designed to favor the trader, not the broker.