Most of us do not have the skills and know how to make money in the stock market without some guidance. That is why it is important to choose a stock market broker who can guide you through the process and help you in understanding the stock market by advising you on best stock picks and investing strategies. There is no such thing as a universal best stock broker for your needs. But here are some thoughts on how you can narrow down your choice from a list of stock brokers to decide who is the best stock broker for you.
How to pick the best stock broker for your needs
Stock brokers come in two varieties: full service brokers and discount brokers. Full service stock brokers charge more brokerage fees, but you get a lot more involvement from your broker, who will contact you with suggestions on best shares to buy and actually conduct the trading with your approval. The brokerage firm's researchers will be conducting research that the broker then offers to you. On the other hand, discount stock brokers are cheaper but will not provide the personalized in-depth service that you get from the full service brokerage firms. These are usually online brokerage services which do not offer investing advice, so that you are responsible for understanding the stock market and picking stocks. A discount stock market brokerage will just place the trades you instruct them to place. This reduces overheads and allows them to offer you discount services.
So, which type is the best stock broker for you? It really depends on your level of investment experience. This article focuses mainly on discount brokerage services, assuming that you are a do-it-yourself investor who does not have the budget to engage a full-service investment firm.
The best stock broker for you is one who suits your trading style and risk tolerance. Some things to consider when choosing from a list of stock brokers are as follows:
Look into brokerage commission rates: Advertised rates can vary from nothing to about $40 for a trade for an online broker, up to $100 for a full-service broker. But make sure that those advertised rates apply to you. These can vary based on specific trading instruments, and can go up for getting live investment advice on the phone. With a full-service broker, commission rates can be negotiable based on the volume of business you are conducting with them, so negotiate your rate to get a better deal from them.
Pay attention to extra fees: Be aware of any extra or hidden fees that your stock market broker may charge. These could include charges for transferring funds in and out of your brokerage account, late payment fees, administration fees, insurance and so on. Read the fine print on the brokerage service's documents, as these extra fees might make your discount brokerage not seem like such a great deal after all.
Look long term: As time goes by, you may want to trade in different markets. Make sure that your stock market broker will be capable of servicing your needs as you trade in a variety of markets, and that their brokerage commission will continue to be reasonable, as it is easier to stick with a broker who you know and trust.
Does your stock market broker pay interest on uninvested cash? Some brokers will pay 3 to 4% interest on invested cash, which can add up.
How much of a deposit will you need up front? If you are still going about understanding the stock market, then you probably want to start out with a modest sum, especially with a new stock market broker whom you haven't traded with before. Some companies may ask for as much as $50,000! As a beginning stock market investor, these brokerage firms are probably not the right ones for you.
Speed: You want to make sure that your discount online broker is fast and reliable. Markets fluctuate, and the more the delay between choosing the trade on your end and your broker actioning it, the more things can change.
Automated features: Online brokers offer automated features such as automated stop losses, which allow you to exit trading once a certain threshold loss has been reached. Or you can set an automatic buy trigger when the share price exceeds a specified amount. Weigh these carefully and see if they might be useful to you as you choose the best stock broker for your needs.
Zeroing in on the best stock broker for your needs
Once you've weighed all the above criteria, you actually want to pick a specific stock market broker. You should check investment clubs and online investment forums for a list of stock brokers to pick from. It is also valuable to get recommendations from other trader who you know and trust. Call several brokers before you come to a final decision.