If you are an active trader looking for a way to save on commissions then Interactive Brokers is probably the best choice for you. With their low commissions, many buy and hold investors have started using Interactive Brokers. So what does Interactive Brokers have to offer and at what price?

Investing/Trading Products Available

Stocks, ETFs, options, futures, bonds, warrants, mutual funds…and so on (click here for full list). Interactive Brokers offers everything that a retail investor can trade. With Interactive Brokers, you are not limited to just U.S. investments as Interactive Brokers allows trading in 80 different markets.

Trading Platform

Interactive Brokers has a variety of trading platforms to trade from whether using their desktop platform, web trader platform, or their mobile platform, you will always have a way to get out of a trade whether at your computer or not. As for their software, executions are great allowing you to enter orders on charts or order tickets. Their charting software offers very basic technical analysis tools, so a charting program (QuoteTracker, which is free, or a paid program like eSignal) is almost mandatory when using Interactive Brokers for technical trading. Interactive Brokers is geared toward the active trader so fundamental investors will have to do their research somewhere else.

Fees

Interactive Brokers is one of, if not the, lowest cost brokers. There is a minimum of $10,000 to open an account. Depending on what you products you trade, some additional fees may apply for data feeds. See a full list of fees here.

Overall, Interactive Brokers is the best broker for active traders and is quickly becoming a favorite among passive investors.

Tired of paying high brokerage fees? Looking to lower your brokerage commissions? Charles Schwab recently began offering free ETF trades when you open a brokerage account with them. Are the benefits worth it?

ETFs Available To Trade Free Now

Schwab US Broad Market ETF (SCHB)
Schwab US Large-Cap ETF (SCHX)
Schwab US Small-Cap ETF (SCHA)
Schwab International Equity ETF (SCHF)

Available In December

Schwab US Large-Cap Growth ETF (SCHG)
Schwab US Large-Cap Value ETF (SCHV)
Schwab International Small Cap ETF (SCHC)
Schwab Emerging Markets Equity ETF (SCHE)

Are Charles Schwab’s ETFs Right For You?

If you are a investor looking for longer-term investments or trades and like using indexes; then these ETFs are worth looking at. For traders and shorter-term investors, the volume is too low for me to recommend them. When trading stocks and ETFs (other than the Schwab ETFs listed above), commissions rates are $8.95 – $19.95, depending on the amount of trades placed.

Understand that commission free trading is nice, but with Charles Schwab, you are limited to a few ETFs that you can trade. If the volume rises in these ETFs, it might be worth looking into. For now, the products are too limited and commissions on other ETFs and stocks are higher than most online brokers.

Get more information on opening an account and Charles Schwab ETFs @ www.schwab.com.

Beta, in short, is a measurement of risk a stock or ETF holds against a benchmark index such as the S&P 500. Higher beta usually means bigger movements and visa versa for lower beta stocks or ETFs. Understanding beta can provide your portfolio with a hedging tool and the opportunity for bigger gains (and losses).

Beta, Beta, Beta.

The S&P 500 SPDR (SPY) has a beta of 1, while stocks and ETFs are calculated using an index to compare the correlation. Any beta over 1 means a stock or ETF outperforms its benchmark index. A stock with a beta of 2.0 will usually go up twice the amount of the benchmark that tracks it but also goes down at the same rate. Stocks and ETFs with a negative beta trade inverse to their benchmark index and are useful in hedging long positions.

The more confident you are of a markets direction, the higher beta stocks and ETFs you want in your portfolio. In an uncertain, choppy market, you should stay with lower beta stocks and ETFs or stick to the indexes.

Pairs Trading

When used correctly, beta is an easy way to outperform (and underperform) a benchmark but can also be a tool to hedge your investments. Buying a stock with a higher beta and shorting a lower beta stock is one way to hedge your investments in an upward trending market. In a downward trending market, just reverse the trade selling the high beta stock and buying the lower beta stock.

Things To Remember

• Beta is calculated on past performance.
• Beta can hide negative correlations.
• Beta, alone, should never be used to buy/short any security.

Use beta wisely and always have stop orders.

One of the best things a trader or an investor can do is preserve capital. The easiest way to do so is through a stop order. A stop order, often referred to as a stop-loss order, is a type of order that gets you out of an investment or trade when the investment or trade hits a specified price, to essentially stop you from further losses.

Stop Orders

A stop order turns into a market order when the price level or percentage is breached, getting you out of a stock or ETF as soon as possible at the market price.

Example: You buy 10 shares of a stock at $10.00 and enter a stop order for 10 shares at $9.00 (or 10%, some brokers do not allow percentage.) The stock moves around before heading lower and breaching the stop set at $9.00. Your stop order now becomes a market order selling 10 shares at the market price.

Stop Limit Orders

A stop limit order is much like a stop order, expect when the stock breaches your stop price/percentage, it creates a limit order instead of a market order.

Example: You buy 10 share of a stock at $10 and enter a stop limit order to sell 10 shares when the price hits $9.00 and for the limit order, you enter $8.75. The price of the stock hits $9.00, which then creates a limit order to sell 10 shares at or above $8.75.

Note: With stop limit orders, if the stock gaps down overnight, you run the chance of not getting your order filled.

Trailing Stop Order

Trailing stop orders are for those who want to limit their losses and lock in profits without actively monitoring the stock market. A trailing stop order is a stop order that moves up with the price of the stock.

Example: You buy 10 shares of XYZ stock for $10.00 and enter a trailing stop order at $1.00 below the buy price. Your trailing stop order moves up with the price of the stock, never allowing your stop order to trail the price of the stock more than $1.00.

Trailing Stop Limit Order

A trailing stop limit order, like the trailing stop order, limits losses while locking in profits. A trailing stop limit order turns into a limit order upon breaching a specified price level.

Example: You buy 10 share of XYZ stock for $10.00 and enter a trailing stop limit order of $1.00 for the stop and $1.25 for the limit. If the stock never goes up and starts falling, you should get out at $8.75 or higher. As with the trailing stop order, a trailing stop limit follows the stock up never allowing your stop to lag the price of the stock more than stop limit, in this case $1.00. Now, say the stock moves up to $12.50, then turns around and starts dropping. The stock hits your trailing stop, which is now at $11.50. In theory, your limit order will get you out at $11.25 or higher.

NOTE: Like the stop limit order; if the stock gaps down, you take a chance of not getting your order filled, as the bid is lower than your limit.

Placing Your Order

Different brokers offer different types of stop orders and some broker have limitations on certain types of stops such as limiting trailing stop orders by only allowing you to place them if you have more than 100 shares. The stop order can be placed either on the bid, the ask, last price etc. Be sure to place the order according to your plan or research.

Shorting Stock and ETFs

Stop orders work with shorting stocks as well. Instead of the stop being below the price of the stock, it is above it. If you are shorting stocks, I highly recommend that you place some type of stop order.

Pay Attention To Volume

If the stock or ETF that you are trading or investing in has low volume, a stop order or trailing stop might get you out at a price way lower than expected. When trading lower volume stocks or ETFs, you should consider using stop limit and trailing stop limit orders.

One of the most popular technical patterns is the head and shoulders pattern. The head and shoulders pattern indicates an uptrend’s reversal and is a reliable pattern with a high success rate. Does it mean that it will work every time? No, does any indicator or pattern work 100% of the time? I trade trends and the head and shoulders pattern is not a pattern I choose to trade against, as the pattern tends to be correct more times than not once confirmed. What is a head and shoulders pattern and how do you trade it?

Head And Shoulders Pattern

A head and shoulders pattern is one type of reversal pattern that indicates an end to an uptrend and a beginning to a new downtrend. Look at the picture below (current S&P 500 chart with a head and shoulders pattern) before I explain a head and shoulders pattern and how to calculate where, based on the pattern, the market, stock, or futures, etc. is going.

Head And Shoulders Pattern Explained

The left shoulders forms in a natural uptrend as the stock makes new highs then falls back (or corrects to what will be called the neckline, this will be the first point of the neckline) before pushing higher to make new highs (head).

After making new highs, the security then falls back from the head to previous lows where it finds resistance. This resistance is from the prior pull back.

The security will start to push higher, and will be unable to make new highs. It is as this time you will notice the formation coming into play. This upward push is the beginning of the right should and is unable to get through the highs created in the left shoulder. It is at this time that you need to connect the two pullback points to create the neckline.

Confirmation of the pattern comes when the security passes through and holds the neckline. Traders will start getting into short positions at this time. As you can see from the chart above, the S&P 500 has not yet broke the neckline. The upcoming week will be an important week as to whether the uptrend is over.

How To Calculate The Potential Move

In an equation, it looks like the follow:

Neckline – (High Point in Head – Neckline) = Price Target

Using the image below (DOW Head and Shoulders Patter), take the high point of the head which is roughly 8,800 and the neckline which is about 8,200. In short, you can expect to see a 600-point move to the downside.

8,200 – (8,800 – 8,200) = Price Target

This gives a price target of 7,600 on the DOW. I recommend that you get out before taking out the target unless the markets or a security (whichever you are trading) is falling apart.

Things To Keep In Mind

• The volume is normally highest in the left shoulder. As the stock reaches new highs (in the head), it is usually not supported by volume.
• The neckline does not have to be perfectly horizontal, it can slightly move up or down.
• Shoulders should peak around the same price.
• You do not have to get short positions but should at least lighten up your holding(s) and buy them at cheaper levels.
• Head and shoulders patterns can be used with all types of securities, whether an individual stock or index futures.