How to Choose an Online Broker

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parts

1Determining the Basics

2Researching Brokers’ Costs and Fees

3Researching Brokers’ Different Features

Other Sections

Questions & Answers

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References

Success in financial markets often starts with choosing the right broker. Most brokers today are based online, which can make it very easy for you to craft your investment strategy and portfolio the way you want. Choosing the right online broker is a matter of figuring out a few basic points and then conducting careful research into the different kinds of brokers.

Steps

Part 1

Part 1 of 3:

Determining the Basics

1. 
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   Decide what kind of investor you want to be. Some investors make lots of short-term trades with the intention of making quick financial gains. This is often known as “day trading.” Others invest conservatively, buying stocks and other financial instruments for the long term. Some brokers are best for day traders, while others are good for more conservative investors.
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   Figure out whether you need a full-service broker or a discount broker. A full-service broker provides expert guidance and a wide variety of services ranging from investment advice to retirement planning. While expensive, such a broker can be helpful for beginning investors. Discount brokers, on the other hand, charge less and offer fewer services. These brokers may be better for those who can make sound investment decisions without help.

   • Some discount brokers will offer high-quality research on their websites, making them a good option for a novice investor who can’t afford a full-service broker.
   • Full-service brokers will often offer one-on-one investment advice, whether in a physical location or through online chat. Some discount brokers offer this service, too, but be aware that such specialized service can come with a high price tag, thus partly negating a discount broker's cost advantage.
3. 
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   Pay attention to what kind of broker you’re dealing with. Brokers who deal directly with the investor are known as regular brokers, while those who act as intermediaries between their clients and larger brokerage firms are known as broker-resellers. Resellers are generally less likely to have gone through the same intense training and certification process that regular brokers go through. They may also be regulated less carefully than regular brokers. This doesn’t mean all resellers are disreputable, but it does mean you should be careful when hiring one, especially if you’re picking a broker for the first time.
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Part 2

Part 2 of 3:

Researching Brokers’ Costs and Fees

1. 1
   Beware of high account minimums. Some online brokers may require a high minimum amount for investment. This is because it can be difficult for them to make money on small accounts. Keep in mind that if you don’t have much money to invest, it's harder to diversify your holdings sufficiently, which can leave you vulnerable to market downturns.

   • There are some highly-rated brokers don’t require account minimums at all, or have low requirements. Several sites will compare brokers for you. Do a search for "Stockbroker reviews."
     
2. 
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   Avoid high fees and commissions. They can wipe out much of your return-on-investment. At the same time, a broker who charges only a minimal fee per transaction may not be very helpful when it comes to investment advice. Some brokers will charge fees for every service they provide, which can add up quickly. When choosing a broker, examine their fee structure carefully so that you’re paying only for the services that you want.
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   Avoid brokers who charge "hidden" fees. These can include "maintenance" fees, inactivity fees, transfer fees and fees for requesting paper statements instead of online statements. Ask the broker you're considering for a list of every fee they charge.
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Part 3

Part 3 of 3:

Researching Brokers’ Different Features

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   Study brokers’ reviews and references. Never choose a broker without conducting intensive research into what kind of value they provide for their customers. You don’t need to go through a bank or the brokers themselves for this information. There are numerous reputable third party finance websites that rank brokers. Two such sites are Stockbrokers.com and Nerdwallet.com.

   • A good starting point to determine broker competence is to check if they’re a member of the Financial Industry Regulatory Authority (FINRA). FINRA is the largest independent regulatory body for securities firms in the United States. Most reputable brokers are FINRA members.
2. 
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   Look for availability. Speed is an important factor in finance. Therefore, you want to make sure that your broker can keep up on busy market days. Visit their website several times during the day, including at peak trading hours, to see if their website can keep up with the market.

   • Speed is more important for investors who make lots of short-term trades than for those who are concerned with investing for the long term. No matter what type of investor you are, however, you’ll want to be confident that your broker’s website won’t go down during a trade or any other inopportune time.
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   Investigate which products a broker offers. Brokers don’t just help you pick stocks. They also deal with many different kinds of bonds, futures, and stock options. Some even offer credit cards or checking accounts. Look at each broker’s specific list of services to figure out which one is right for you.
4. 
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   Check for alternative trading routes. You may want to initiate trades at times you cannot be at your computer. Some brokers offer trading options that include telephone operations (either automated or "live") or orders by fax. Take note of the fees associated with these alternatives. They may differ from those of regular online trades.
5. 
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   Judge the reliability of a broker's customer service. Waiting on hold for 20 minutes can mean the difference between a successful and an unsuccessful trade. Before picking a broker, make sure that their customer-service department will be willing and able to help you with potential problems quickly and efficiently. Choose a firm that offers a variety of different ways to contact them in case of emergency. A broker whose customer service you can call, text, or email with the expectation of a quick response may be a better choice than one whom you can only call. Some brokerage websites may also allow for online chat.
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   Determine how a broker deals with interest. Traders typically keep some uninvested money available in their account for quick investment. Find out how much interest -- if any -- the broker will pay you on that parked cash. Don’t consider it a deal-breaker if the broker won’t give you interest on uninvested money, since you may not want to keep it uninvested for long.
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   Be aware of free extras. Look for perks from the broker. Some will offer a bonus of free trades to entice you to open an account. Others might offer online finance courses. If you think these bonuses might make you a happier and more well-informed investor, you should consider hiring brokers who offer them.
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• Question

  What's the minimum that I can start with?

  

  Donagan

  Top Answerer

  It varies from one broker to the next. Ask your broker.

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• Question

  Can I purchase Nike stock without a broker?

  

  Shams_afnaan

  Community Answer

  No, you will need a broker to purchase stocks. Even the legendary investor, Warren Buffet, has a broker.

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  Thank you for your feedback.
  If How.com.vn has helped you, please consider a small contribution to support us in helping more readers like you. We’re committed to providing the world with free how-to resources, and even $1 helps us in our mission.Support How.com.vn

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• Question

  How do I start dealing with a broker?

  

  Donagan

  Top Answerer

  Read the above article. Pick a broker. Notify the company by phone or website that you want to open a trading account. You will be given instructions on how to do so.

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  Thank you for your feedback.
  If How.com.vn has helped you, please consider a small contribution to support us in helping more readers like you. We’re committed to providing the world with free how-to resources, and even $1 helps us in our mission.Support How.com.vn

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