🏦 Module 3: Broker & Costs

Regulation as a Mandatory Criterion

Not every licence is worth the same. Good regulators: BaFin (DE, highest EU level), FCA (UK), FMA (AT), FINMA (CH), FINRA+SEC (US). CySEC (Cyprus) is often a warning sign for retail CFD brokers.

Deposit Protection

DE/AT €100,000 (EdB/ESA), CH CHF 100,000 (esisuisse), US SIPC $500k incl. securities. EU brokers with Cypriot licence often only €20,000 (Investor Compensation Fund).

Securities as Segregated Assets

Separately held at CSDs (Clearstream, DTC). In the event of broker insolvency, shares remain your property. Deposits (cash) are treated differently!

Execution Quality

Spread width, slippage, price improvement rate. Brokerchooser publishes annual comparisons. US brokers must disclose SEC Rule 606 reports.

Platform & API

Web UI, desktop (TWS, Trader Workstation), mobile app, REST/FIX API. For active trading: platform with hotkeys + one-click trading.

Product Range

Stocks, bonds, ETFs, options, futures, forex. German brokers often weak on US options (IBKR, Trade Republic are positive exceptions).

Margin & Leverage

Reg-T (US standard 2:1 intraday, 4:1 day trader pattern), Portfolio Margin (for >$100k accounts, 6–7:1 on stocks).

Tax Simplicity

German brokers handle withholding tax automatically + annual tax certificate. Foreign brokers (IBKR, Saxo): manual Schedule KAP filing required.

Checklist: 10 Questions Before Switching Brokers

Popular Brokers in DACH Region

💡 sTraderZ.com supports data import from the major DACH brokers (IBKR Flex Query, Trade Republic CSV). Your trades are automatically detected and categorised.

Commissions

Per-trade fee. Models: fixed (€1–10), per share (IBKR: $0.0035), percentage (rare). Minimum ticket fees often €2–5.

Spread

The most important hidden fee. Apple spread 0.02% = $2 per $10k order. Small-cap spread 2% = $200 per $10k — often larger than commission.

Financing Costs (Margin)

If you trade on margin, you pay interest. IBKR: benchmark + 1–1.5%. German neo-brokers: often + 5–8% (expensive).

Short-Selling Fees

Borrowing shares costs money. Normal: 0.25–2% p.a. For squeeze candidates: 10–50%+ p.a. (GameStop 2021 temporarily 80%).

Currency Exchange Spreads

0.5–2% typical at the broker (hidden margin). IBKR: spot FX with IDEAL Pro, ~0.02% spread.

Market Data Fees

US exchanges charge data subscriptions. Nasdaq Level 1: $1.50/month. Level 2 at IBKR: $18/month. At Trade Republic: delayed data free.

Account Maintenance Fees

Comdirect: €1.95/month from year 2. IBKR: none with an active account. Always check!

PFOF — Payment for Order Flow

• Model: Broker sells retail orders to market makers (Citadel, Virtu), collects rebate.
• Retail formally pays €0 commission — but indirectly receives slightly worse execution price.
• Robinhood 2021: 80% der Erlöse aus PFOF.
• Banned in UK, Germany (since 2024, MiFIR II), Belgium.
• USA: permitted, SEC discussion ongoing for years.
• Typical benchmark: 1–3 bps worse execution vs. direct market access.

Total Cost Calculation (Example)

Pitfalls

❌ "Zero-commission brokers" are rarely truly free — spread + PFOF + FX conversion eat into returns indirectly.

Smart Order Routing (SOR)

The broker's algorithm seeks best execution across multiple trading venues (NYSE, NASDAQ, dark pools, MTFs). Standard at premium brokers.

Direct Market Access (DMA)

You route yourself to the desired trading venue. Typical among professionals for options (CBOE vs. ISE vs. PHLX). IBKR, Saxo offer this.

Internalisation

Broker matches retail orders internally (own pool) against other retail customers before they reach the exchange. Formally costs less — but no real market-price protection.

Dark Pool Routing

Large-size orders go into anonymous pools (ATSes) to avoid market impact. Usually irrelevant for retail below 10,000 shares.

Best Execution Obligation

MiFID II Art. 27, FINRA Rule 5310. Broker must document "best possible execution" (price, speed, probability of execution).

RegNMS-Trade-Through-Rule (US)

Since 2007: NBBO (National Best Bid/Offer) must be respected. No execution at a worse price without client consent.

What Retail Traders Can Do Concretely

• ✅ Limit orders instead of market orders for market cap < $500k or spread > 0.1%
• ✅ Before earnings/FOMC: reduce positions or plan for widening spread scenario
• ✅ After-hours: limit orders only
• ✅ Prefer brokers with best-execution reports (SEC 606)

💡 IBKR offers granular order routing control (SMART, DIRECT, dark pool). For retail, SMART is usually optimal — but it's worth studying your broker's 606 report.