How To Choose A Stock Broker?

How to choose a stock broker is a question that every new investor or trader asks. As a stock investor, your success majorly depends on the broker you are using. This is because there are lots of roles such professionals can play in ensuring you are making the right investment decisions that will yield maximum returns. For instance, your stock broker will render professional advice wherever necessary, ensure effective fund management is rendered, carry out accurate market analyses to enable you identify winning stocks, keeping of transaction records and many others.

In order to choose the right broker, we will try to reveal factors to always consider before choosing one. Ignoring any of these could mean serious danger for your investment. This is due to the fact that not all of them are god enough to help manage your investment portfolio. In fact, some will cause more harm than good. There are investors who have complained of brokers using dishonest tactics.

What is a stock broker?

A broker can be seen as a firm or individual whose duty is to arrange transactions that are conducted between sellers and buyers. Simply put, stock brokers sell or buy shares based on their clients’ instructions. There are usually two types of brokers. These are broker dealers and regular brokers. A regular broker will deal with you directly. Broker resellers play the role of intermediaries. In other words, they act as middlemen between larger brokers and their clients.

It should be noted that regular brokers are more respected and recognized as compared to broker resellers. One of the reasons for this is that they are members of reputable organizations like SIPC (Securities Investor Protection Corporation), and FINRA (Financial Industry Regulatory Authority). Below are the factors to take in consideration for how to choose a stock broker:

Identifying your needs

Before choosing a stock broker, it is very crucial to find out what you want from such services. For instance, execution only brokers are known to carry out trading activities based on instructions of their clients. Their services don’t include financial planning or rendering of advice. They are also known as discount only brokers. Majority of the brokers you will find online render this service.

Advisory brokers on the other hand, will help to analyze your investment ideas. This is to ensure you pick winning stocks. This option is mostly recommended when you have zero knowledge about the stock market but would like to invest. With the help of an advisory broker, your investment will be safe. Imagine your broker offering extra insight and support wherever necessary. Please note that advisory brokers are more expensive to hire as compared to execution only brokers.

Consider your stock broker’s flexibility

When it comes to the subject of stock broker flexibility, there are many variables to consider. For instance, there is the issue of availability. Is your stock broker going to be available on a 24/7 basis to execute trade on your behalf? If he is not available, is there someone who will be standing in for him? If there is, ensure that such a person is equally an expert in stock matters. The stock market changes every now and then. Therefore, it is very important to move with the trend. It all depends on the stock broker you have chosen. This is why he has to be around on a 24/7 basis.

Another aspect of flexibility is whether your stock broker operates accounts which enable you to enjoy some tax benefits. Accounts like these will help to ensure you are maximizing your returns on profits generated from investments. Furthermore, ensure your stock broker makes provision for a multi-currency account. This is very necessary for international investments. Generally speaking, the more flexible a stock broker is in terms of services being rendered to clients, the better.

Costs & Fees

It doesn’t really matter how good a stock broker is when your budget is limited. This is because you can’t afford his services. This is why you should never do all the analysis without considering the size of your budget. There are two aspects of costs to consider here. These are:

  • Trade execution fees
  • Brokerage fees 

In order for you to set up an account with most brokers, at least $500 will be required. There are some that even require $1,000. This should be taken into consideration in relation to your budget. In case your resources are limited, make your choice from brokers who require $500. Furthermore, find out the interest rates which a stock broker is charging while trading on a margin. Also, find out whether such stock brokers charge withdrawal fees.

There are some which allow checks to be written against accounts of their clients. In a nutshell, ensure to understand the policies of each stock broker with regards to operating an account. With such knowledge, you will definitely be on the right path.

Know your investment style

Most stock investors (especially newbies) usually ignore this aspect while trying to choose a reliable and trusted stock broker. Are you an investor who buys and holds stock or a trader? Here is the difference, traders buy stocks with the intention of selling them outright. In other words, they are not known to hold stock for a very long period of time before selling. They are aiming to make quick profits.

As a trader, it means you are buying and selling every now and then. In this case, it is recommended to search for stock brokers who have minimal charges. The execution fees charged by your chosen broker should be very low. When trading fees are high, such can affect your returns to a great extent. On the other hand, if you happen to be a “buy and hold” investor who expects such investment to appreciate overtime, there is no need to pay attention to trading fees.

Asking the right questions

It is always a nightmare dealing with the wrong broker. This is because your hard-earned money will be at risk of being lost. This is why you need to ask some sensitive questions. For instance, ensure you are dealing with a registered stock broker. If possible, it is recommended to visit their office in person in order to observe things firsthand.

Furthermore, avoid dealing with an inexperienced stockbroker. This is very important especially when you don’t understand much about stock investment. In such a case, it is the duty of your stock broker to guide you. The problem is that if he/she doesn’t have the required experience, you may be misled. This can bring about a huge loss. Experienced stock brokers understand the market and how it works. They have an in-depth knowledge when it comes to helping their clients to pick winning stock. 

Testing the platform

This is very important especially when you want to choose an online broker. There are brokers that can allow potential investors to open free accounts. Look for these and take advantage of such offers. The goal is not to make use of their platforms but give them a test in order to know whether they are worth using in the long run.

Some trading platforms are quite difficult and technical to use. Also, some are not secured when it comes to investing your money. These should be taken into consideration before reaching a decision about the broker you want to sign up with.

Even when the platform is accessible and user-friendly, there are still other variables/factors to take into consideration. For instance, you need to find out the trading tools that are available. There are companies which offer investors lots of free resources and tools. The goal is to enable them to trade effectively.

Here is a list of some of the online brokers:

Using reviews from investors

In case you don’t know, reviews are still very relevant in lots of regards. As a matter of fact, ignoring them could mean danger for your investment sooner or later. Of course, every broker would always want to claim being the best. If you are new into the world of stock investment, it will be very difficult to make the right decision about which broker to sign up with.

The best way to go about this problem is reading or listening to reviews from investors who are currently using such brokers. These will give you an idea about whether their services are up to scratch or not. For instance, you have just found an online broker which seems to be talking about its achievements and how other investors have benefited from using its platform in the past.

The best thing to do here is not to sign up immediately. Instead, carry out research about such platforms in order to verify their claims. Reviews from real and unbiased investors will make your mind be at peace.

Final words

Based on the above, it is obvious that there are lots of factors to consider when it comes to choosing the right stock broker. Anything short of these can lead to unimaginable losses for you which may not be good. It is therefore recommended that you apply each of the ideas shared here to be on a safer side.

If you are new to the stock market, have a look at our stock market guides. We also cover news and topics about cryptocurrencies and crypto guides. If you find any of these articles usefull, don’t forget to follow us @invest2rest_com.

Subscribe to our newsletter!

Latest articles

Related articles