Long-Term Investing

Questrade vs. Others

And the saga continues…

After receiving a comment from Questrade on my previous post about brokerages, I went to the CIBC’s web site to take a closer look at what exactly they offer. Nowhere on their web site do they mention that you get Direct Access Trading with their Investor’s Edge plan. I gave them a call and spoke with a rep. He said that what happens with my order depends… if I have cash in my account, my orders go directly to the market – “through an Exchange, yes, but there are no ECN fees”. When asked “why are there no ECN fees if you still use an exchange to send the order to the market? do you absorb the fees?” he said “I just don’t recall ever seeing ECN fees.” We kind of went in circles after that.

Even if you’re not a daytrader, you may find this book interesting: The Day Trader’s Survival Guide: How to be Consistently Profitable in the Short-Term Markets. It tells you why you want Direct Access trading. Some activities the “Wall Street” (or “Bay Street” in our case) engages in seem highly unethical and read almost like a conspiracy theory.

In short, the danger is that while the broker is looking to match up your order with someone, they’re only looking to make money on the difference (buy lower from someone, sell higher to you, even if you’re using limit orders). And while you’re waiting to get your order filled, market direction could have changed. Order cancellations are also more tricky because of these delays. Now, I don’t know if that’s the case with CIBC – but I don’t know that it’s not either. I’m not comfortable switching to them not knowing the whole story and plan to send them an email about this.

Order execution is much faster with direct access, because your order is being carried into the marketplace directly by you, the trader. This is another way of saying that the online brokers are in the business of trading against their customers, while direct-access trading firms are not. (From the book)

Basically, the only way a brokerage can offer low-low fees is by making money off of you in some other way – like by capturing the spread between what you’re willing to pay and how much a seller asks (but it’s not the only way).

I found 2 Canadian Direct Access discount brokers that state so on their web site: Questrade and Trade Freedom. There are possibly others, but I don’t know about them.

Here’s how their ECN fees compare:

TSX ECN fees

Questrade – Removing liquidity: $0.0036/share
TradeFreedom – Removing liquidity: CAD $0.0036

TSX-V ECN fees

Questrade – $0.0004/share, $1 min, $50 max
TradeFreedom – CAD $ 0.0004 (Min CAD $ 1.00, max CAD $ 50.00 per execution)

Ok, so they’re the same price for what I use. It’s up to you to check if there are other advantages with one over another, but there’s no financial incentive for me to switch. Direct Access is enough for me to stay with Questrade. I’m still going to email CIBC about their low fee and ask “where’s the catch?”.