A Detailed Guide on How To Find the Perfect Online Stock Broker
In investing, brokers are people who facilitate trades on your behalf. You provide them with instructions - such as buying or selling stocks - and brokers carry out your bidding.
Not all brokers are created equal, which is why broker choice is essential. While they can’t guarantee returns, having a competent broker on your side can skew the odds of a profitable outcome in your favor.
In this post, we explore how to find a broker who meets your needs, considering your budget and investment style. So read on to find out what it takes to select the perfect broker who meets your investing needs.
Find a Broker That Offers the Optimal Level of Service
The type of broker you choose should reflect your preferred style of investing. For instance, if you tend to trade actively, you’ll want to choose a stock broker that allows you to enter and exit the market rapidly and at your convenience. Similarly, if you prefer a professional broker to manage your investments for you, then you’ll need a different type of service.
Full-service brokers offer investors a full suite of services that are necessary for making sensible investments. Platforms offer:
- Managed accounts, where a personal broker manages your investments for you
- Financial advice, where you can talk to a broker about portfolio allocations, etc.
- Wealth management tools
- Alternative asset classes
- Proprietary research
Investors who use full-service brokerages typically pay higher monthly or quarterly premiums. These brokerages may charge a percentage of your portfolio’s value or fixed fees for portfolio management.
If you’re just starting out, you can get in-house analysts to manage your funds for you. Later, when you are ready to do so yourself, you don’t have to rely on their assistance to such an extent’’. That’s why these types of brokerages may be better for beginner investors.
Discount brokerages offer a limited range of services compared to full-service ones. Even though they provide all the tools you need to go to the market and buy financial assets, they may pare back account management options to allow them to charge lower fees. The good news is that some may not charge a commission on trades at all.
Discount brokers do not usually provide human advisors, so you won’t be able to go to someone for advice. Robo-advisers may be available, but their investment strategies may be too generic for you.
The range of financial assets you can buy may also be narrower. For example, you may only be able to buy the most popular stocks and ETFs, but not the rarer varieties that better suit your needs.
Nowadays, most brokers offer online trading platforms. These can be either full-service or discount brokerages, depending on the brand you choose. If the online brokerage is full-service, it will typically offer telephone support, access to financial advisors, and even the option of buying stocks with old-fashioned paper-based ordering.
Learning how to choose a stock broker that provides the services you require is key. As most investors keep their trading accounts for decades, you’ll need to make prudent decisions when hiring a broker.
Choose the Lowest Fees for the Types of Investments You Prefer
The next step in choosing a broker is to explore how much it will cost you to make the type of investments that you’ll be making most frequently. Broker fees vary considerably among platforms and types of securities you want to buy. Therefore, it is worth exploring the fee structure in detail. For instance, if you want to buy large quantities of stocks, look for brokerages that offer low, flat fees instead of percentage commissions.
In many cases, brokerages don’t charge a commission for trading stocks and bonds. This approach allows you to enter and exit trades as many times as you like, without incurring any costs. However, you will have to pay monthly or quarterly fees, and these may wind up being higher than if you’d paid a commission on each trade separately.
Some brokerages offer hybrid fee structures. Here, the amount of commission you pay on trades decreases your monthly or quarterly account fees. For instance, the basic holding charge might be $25 for the quarter and $7 per trade. If you make two trades in one quarter, the broker may reduce quarterly payments to just $11.
Below is an overview of some typical fee structures for other financial instruments:
- Options: Not many brokerages offer retail investors options trading. However, those that do tend to charge quite a lot for the service. You’ll have to pay the basic stock trading fee, plus an additional contract fee of $0.15-$1.50. Before committing, check each stock investing website for the precise amounts you’ll pay.
- Mutual funds: Brokers might charge a fee for purchasing mutual funds. The fee covers the broker’s administrative expenses. Please note that this initial setup fee is not the same as the expense ratio charged by the mutual fund itself (usually 1-3% per annum).
- ETFs: Exchange-traded funds are bundles of securities that you can buy in one fell swoop. Most platforms charge a commission for buying these, but not all. Some may also provide commission-free ETFs as part of their offering.
- Cryptocurrencies: Most investors buy cryptocurrencies on exchanges. However, brokerages are also beginning to offer them. Keep in mind, though, that you are likely to pay more on a conventional brokerage than an exchange.
Choose a Brokerage With a Long Track Record
When it comes to what to look for in a brokerage, you’ll also want to check its track record. While many brokers have been around for decades and have built impressive reputations, others are new to the market and have yet to prove themselves.
Despite your money being safe with practically all SEC-regulated brokerages in the US, you may jeopardize your funds if the broker lacks experience. For instance, during the GameStop craze of 2021, some newer brokers didn’t have enough cash on hand to make purchases and had to start restricting trades. For a time, investors weren’t able to buy the securities they wanted because of a lack of liquidity.
Review Account Minimums
Learning how to pick a brokerage account also requires carefully checking the minimum amount that you can invest at a time.
Brokers vary considerably in this respect. Some don’t have account minimums at all, allowing you to invest whatever spare change you happen to have in your regular checking account. Others require you to invest $500 or more at a time, which can be annoying if you just want to buy stocks piecemeal.
Explore the Level of Account Protection Available
Brokerages have a duty to protect your money and information. Nobody should be able to gain access to your trading account or find out how much money you have in it.
That’s why it’s advisable to check whether the brokerage offers two-factor authentication. Look for services that require you to sign in using a password and then confirm your identity via your phone, email address, or security app.
When vetting a broker, also check the small print in their digital protection policy. Try to find out if they encrypt your cookies, as this will add another layer of protection.
You’ll also want to ensure that the broker never sells your information to third parties. If it does, then it does not have your best interests at heart. The commission you pay should be more than enough to cover the brokerage’s financial needs without resorting to reselling confidential data.
Consider Which Educational Tools You Need
Many brokerages offer educational resources designed to help both new and experienced investors make better trades. These may include whitepapers, blogs, webinars, podcasts, videocasts, and tutorials.
Educational resources can come in handy when you want to engage in new kinds of trades. For instance, tutorials can guide you through more advanced trading styles, such as options or futures. These show you how various securities work and what the risks associated with trading them are.
Different types of brokers offer various kinds of help. You may find that some focus on giving instructions, while others delve into analysis and what is likely to happen in the future. Personal stock brokers may send you daily or weekly advice emails for your consideration.
Check If the Broker Offers Tax-Advantaged Accounts
You should be able to manage your tax-advantaged accounts directly via your brokerage. Quality brokers show you your account limits, information on when you can release funds, and any tax you may be liable to pay.
Check Forex Trading Features
If you want to profit from fluctuations in international money markets, you’ll need a broker that lets you trade foreign exchange (forex). Not all brokers offer this facility, and those that do may only provide it for certain high liquidity currency pairs. Therefore, you may need to trade some currencies indirectly via USD, EUR, or GBP.
Keep in mind that forex trading is not investing, which is why you’ll need a day trader account. Once you buy or sell a currency, you can take the profits and losses immediately.
Learn More About the Broker's Customer Service
The level of customer service you require depends on your personal investing style. However, you may want a brokerage that offers:
- A phone number where you can talk to a human agent
- Lines that are available 24/7 (just in case you are traveling, working late, or notice a problem in the middle of the night)
- An email address or text chat feature
- An automated number for basic queries
Test the Broker’s Platform
Lastly, you’ll want to test your broker’s platform to see whether it meets your needs. The best way to do this is to simply take the platform for a spin and see if it’s in line with your requirements.
Most brokerages offer web-based services you access through your browser. However, some newer firms also provide apps. Broker investment styles differ considerably in this regard.
You might also want to set up a “dummy” account that lets you buy and sell shares with virtual money before putting real trades into practice. This way, you can test all the features and avoid making rookie mistakes.
In this guide to choosing a broker, we’ve covered how brokers work and reviewed fee structures and the features brokers offer. However, before you make your final selection, you’ll need to do your own research, too.
Don’t worry if you make the wrong choice, as switching brokerage accounts is easy. What’s more, nothing is stopping you from opening multiple accounts and testing each broker to find the right one for you. Finding a broker is easy once you’ve analyzed all the aspects we presented in this article.
Is it hard to change brokers?
No. You can switch brokerages easily with the help of an in-kind or ACAT transfer. They facilitate the process of moving your funds to another brokerage, allowing you to take advantage of improved fee structures and other perks. However, you will need to complete some paperwork.
Can I have more than one broker?
There is no legal limit to the number of brokerage accounts that you can open. However, you will need to be careful that you do not exceed annual limits across various platforms on tax-advantaged accounts. Many people choose two or more brokers to take advantage of favorable fees for several types of financial securities.
How do brokers work?
In the US, the SEC regulates brokers. They are intermediaries who carry out trades and investments on your behalf, processing them for you. Owing to their role, you don’t need to personally go to a stock exchange and buy financial securities.
How much does a private broker cost?
The average fee for a private broker is 1-2% of your managed assets. For instance, if you have $1 million in your portfolio, a private broker will typically charge between $10,000 and $20,000 per year. However, they may earn their commission by growing your portfolio by $100,000 annually.
Is hiring a stockbroker worth it?
If you have atypical investment needs, then hiring a stock broker might be worth it. Learning how to find a broker may also be a good idea if you are new to investing and want to get the best start possible. However, there are cheaper and even free online and discount brokerages you might want to consider.
For years, the clients I worked for were banks. That gave me an insider’s view of how banks and other institutions create financial products and services. Then I entered the world of journalism. Fortunly is the result of our fantastic team’s hard work. I use the knowledge I acquired as a bank copywriter to create valuable content that will help you make the best possible financial decisions.
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