The process of choosing a broker isn’t as simple as picking a name out of a hat. It takes time and careful research to pick the best broker for you. Below are some of the most frequently asked questions about brokers and the selection process for picking one. A good broker can take your trading career to new heights, while an unscrupulous broker could do just the opposite.
What does a broker do for you?
Brokers arrange transactions between a buyer and seller. They receive a commission after the deal is executed (though, sometimes, they choose to reduce or even eliminate commission fees for certain trading products). Brokers are necessary because securities exchanges will only accept orders from exchange members. Brokers are exchange members who complete your order on your behalf. However, a good broker won’t just be an intermediary. They should also perform other services, including research and data.
Research & Marketing
While the broker is an intermediary, that isn’t its only job. A good broker will provide you with research, data, and trading tools to will help you determine which trades to make or avoid. Some brokers assemble their data using multiple sources, while others generate their own research, commentary, and advice. The best brokers are those who source from as many locations as possible, yet still have the ability to generate their own research.
Discount vs. Full-Service
A discount broker charges a reduced commission, usually within the range of $5 to $15 per trade. The broker has a lowered fee structure, and its employees work on salary, not commission. Discount brokers don’t offer personalized advice or account management; they are true, no-frills intermediaries.
By contrast, a full-service broker doesn’t just execute trades on traders’ behalf, it also offers market research, retirement planning, and investment advice, all of which are added onto its full range of trading products. Investors will pay higher commissions for a full-service broker.
Technology Suites
Lastly, a broker should provide you with the latest in trading technology. Many brokers have downloadable platforms, in addition to apps and websites. High-tech trading platforms help traders access their information conveniently and execute trades quickly and effortlessly. A broker should make trading far more convenient for you.
What should you look for in a broker?
When looking for a broker, you want to make sure that you take into account fees and commissions, user experience, customer support, and product variety. Though this list is far from exhaustive, it will put you on the right path to selecting the best broker for you.
Fees and Commissions
Your earnings will take a cut if the broker you select has high fees or commissions. Check to see if the broker you’re thinking of choosing has commission-free trades. If they do, check that those products line up with the ones you intend to trade. Fees and commissions hit your wallet hard, so you want a broker with as few of those as possible. In our broker reviews, we break down the pricing for trades and services.
User Experience
When we say, “user experience,” we mean a glitch-free, smooth-running system. You don’t want to be spending hours hunched over your laptop in frustration because the downloadable platform isn’t working. User experience should run smoothly, and your broker should make your day more convenient, not less.
Customer Support
Along the lines of positive user experience is excellent customer support. While customer support might not be on the forefront of everyone’s mind when they are selecting a broker, it is still a must-have. You never know how much you need customer support until something goes wrong. You want responsive, fast customer service that won’t put you on hold for hours and cause you to miss crucial trading time.
Product Variety
A wide range of products is essential. If you’re a trader who wants a diverse portfolio, you can’t afford to be hemmed in by a short bench of trading products. Check what the broker offers. Also, check to see how long withdrawals and deposits take. You want your trading career to move quickly, not be held up by long wait times.
How do you choose a broker?
Research, research, and more research. Choose a broker the way you would a car. Look into the reviews, customer complaints, and ins and outs of each broker. Weigh the pros and cons. Don’t be afraid to try the brokers’ demos, many of which they offer free of charge, before you commit to a plan.
What are things to be aware of when choosing a broker?
As aforementioned and further discussed in the individual reviews, brokers are multifaceted. Each broker has its pros and cons. However, there are some things that are nonnegotiable, such as transparency and regulation.
Transparency
A broker must be upfront about their fees, commissions, and whatever else they charge. A broker that tries to hide this information is to be avoided at all costs. Reputable brokers won’t try to hide pricing plans from you, nor will they play “gotcha” games with customers.
Regulation
There are several main regulatory bodies in charge of overseeing brokers, such as FINRA, the SIPC, and the SEC. Brokers should have their regulators listed at the bottom of their home page, and some brokers even go above and beyond and include information about their intra-company ethics policies.
Transparency and regulatory oversight are just two of the many factors to consider when selecting a broker. The overall key to choosing your broker is researching all your options before making a decision.