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Online Broker Review: TradeStation

TradeStation online broker logoWhile online brokerage firms have largely competed on the basis of low commissions and fees, others have tried to carve out a specific niche by catering to particular types of customers. TradeStation is one of those online brokers that seems structured with specific segments of the market in mind.

In the case of TradeStation, its niche appears to be reasonably high-volume traders who are interested in pursuing technical or quantitative trading strategies. TradeStation's tools and pricing seem best suited to this type of customer.

TradeStation fees and pricing

On the surface, TradeStation's commissions seem pretty typical of today's online brokerages. In the recent MoneyRates.com rating of the Best Online Brokers, TradeStation commissions came out to a $5 per share flat fee, putting it exactly in the middle of the pack.

However, what makes TradeStation's pricing stand out is it also offers alternative commission structures, including per-share pricing (as opposed to a flat per-trade fee) and rebates for high-volume traders. Per-share pricing can be especially useful for people trading fairly low-liquidity stocks, who may find that execution of a specific buy or sell program might come in small lots stretched over multiple trading sessions. As for the rebates, driving costs down is one way to make high-volume trading more efficient.

TradeStation platform

TradeStation also offers back-test tools based on comprehensive databases of market history, including intra-day trading patterns. These allow investors to explore how different investment approaches would have worked both through specific types of market conditions in the past, and over the long term.

These characteristics - flexible pricing and back-test tools - can work together to help investors looking to pursue quantitative trading strategies find cost-effective ways to execute those strategies.

TradeStation's characteristics make it a good fit for traders who know what they want and what their activity patterns are likely to be. It may be less suited to beginners who are just starting to learn how they want to approach online trading.

Investment tools and what-if scenarios 

Take the back-test tools, for example. These can be useful for sophisticated investors looking to run "what-if" scenarios, but investing purely based on how markets have behaved in the past can be a form of fool's gold for investors. While markets go through regular cycles, each one is different, causing any given investment strategy to perform differently. For example, the bear market of 2000 to 2002 that was fueled by the burst of the dot-com bubble was quite different from the one of 2008 and early 2009 that was fueled by the financial crisis.

In short, back-testing can be useful for understanding how your investment strategies might behave in different market environments, but back-testing alone is a shaky basis for those strategies.

Who is a good fit for TradeStation?

TradeStation may be best suited to experienced investors is that it charges a service fee of $99.95 per month for customers who do not meet minimum activity or account balance thresholds. Those thresholds are fairly modest, but clearly the pricing is intended to discourage smaller or less active investors who just want to open an account for occasional activity.

In summary, indications are that TradeStation has designed its offerings with an experienced, active trader in mind, and that is the type of potential client who should give the firm the closest look.

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