Securities Exchanges
Stock markets provide a regulated/ facilitated environment for carrying out securities transactions/ trades. It operates in fixed trading hours - beyond those hours, brokers may trade on their amongst themselves in extended trading hours.
Brokerages
Every trade is accomplished by agents/ brokers authorized to trade in the stock market - usually on behalf of their customers. A fraction of each trade is usually collected by the stock exchange as fees. A fraction is also collected from the buyers by the brokerage agency.
Regulation
They are regulated by rules framed by the Securities and Exchanges Commission (SEC) in USA.
Front-running of clients by their brokers is illegal. Also, while assigning option exercises sent to them by the exchange, they should use some equitable mechanism.
Quality
Brokerages vary in the fees they charge for trades, inactivity, money transfers.
They vary in the account opening process: minimum money required, ease, acceptance of international/ foreign traders.
They also vary in their ability to reinvest dividend without extra fees, interest paid for funds in ’sweep accounts’ holding uninvested cash.
They vary in the types of orders one can place, their quality of execution, the UI, speed of money transfers, whether investments are insured by a government agency (SPIC in USA).
zecco seems to have issues in order execution, severe ACH transfer delays, horrendous customer service. just2trade seems cheap and reliable, but it has very restrictive policies on options trading: eg: it would not allow selling cash covered puts. OptionsHouse seemed more flexible, with a good customer service, if slightly costlier.
Fees
- Exchange fees
- When a market charges taker and maker fees, they differentiate whether you’re increasing the size of the order book or decreasing the size of the order book. When you create an order that is immediately matched with already existing orders, you’re a taker because you take liquidity from the market.
- Brokerage fees
- Taxes
- On transaction
- On profits
Using leverage
Aka Margin trading. One can act on one’s belief about a security using money borrowed from an agent - in the hopes that one can sell it, repay the loan and make a profit on top of it.
Insider trading
Trading based on non-public information - like board meetings - which can especially profit some people more than others, is discouraged and made illegal, mainly based on disguised jealousy.