How to Choose Your Stock Broker - Step By Step Guide
Choosing a stockbroker is the second step.
The first step is identifying your needs and analyzes your investing style.
Let’s take the example of shoes. If you don’t know the exact size, then you can’t buy a proper fit. The same thing applies to trade.
When you don’t know the size of your trade and investments, how can you choose your perfect stockbroker? Choose a stockbroker based on trust, cost, ease of use and available resources online. Some shady stockbrokers trade your position virtually to save costs and cannot afford to transact or pay when too many people cash out.
If you don’t have the right broker tool, you might struggle throughout your trading journey. For example, I realized Thinkorswim is better for options as they have a probability of In-The-Money for each strike price unlike a general broker like InteractiveBroker.
We will discuss more on how to choose your stockbroker with a step by step guide.
How to Choose Your Stock Broker? Step By Step Guide
You need to consider commissions, fees, security, and advanced features while choosing your stockbroker. So, let’s have a look at the step by step guide.
Step 1: Know your needs.
Before starting research for the best stock broker, identify your needs. Identify your investment goals and an investment learning curve. When you are new to trading, you need some basic education of trading and place practice trades before putting real money. On the other hand, if you have some trading experience under your belt and want advanced level education, find some opinion-based resources.
An experienced trader who has executed hundreds of trades is looking for a new stockbroker; it can help you find the best stockbroker. Be honest with yourself, identify your current position, and set your realistic destination. When you choose a path and refine your goals, you might have lots of questions during this journey.
Step 2: Narrow the field
You have set your investing goals and can choose a stockbroker according to your requirements. Narrow your choices and look for the brokers that fit your needs. Consider the following factors while choosing the best stockbroker.
Discount brokers and full-service brokers are two different terms. Full-service brokers offer individual recommendations and advice, and these services are costly. A full-service broker does much of the work for the investor. On the other hand, discount service brokers offer you the power to make your own decisions. You can take their advice on a particular trade for paying them a fee. It is not ideal for a new or fresh investor to choose a full-service broker. Nowadays, you can get lots of discount brokers online and get expert advice.
Age matters a lot in trading; if you are under 30, you might have a limited budget. You will come across trading fees and brokerage fees. Identify and observe all the hidden fees because these can hurt you in the long run. For account setup, some online brokers require a minimum of $500 to $1000.
It is not ideal for a new investor to think about the margin account at the start, but he might be interested in it in the future, so think about it. For the margin account, minimum balance requirements are high than standard accounts. Check the interest rate that your brokerage will charge when you make a trade.
Some online brokers don’t charge this fee, but some brokers charge massive fees, so keep an eye on the withdrawal fees. So, in case your account balance drops from the minimum balance requirement, they wouldn’t allow you to make trades.
Some online stock brokers have complex fee structures. You wouldn’t understand how much you will be paying. Make sure that the fee structure is legitimate and clear; otherwise, you might be paying massive hidden expenses later. Make sure that the fee structure suits your investing style. If the rate and fee structure seems good, read the account agreement. Be aware of the annual fees.
Your investment style plays a crucial role in choosing the best stockbroker. You might be a trader or buy and hold investor. Traders don’t hold options for a long time, and they are interested in making quick profits. So, find a stockbroker according to your trade styles.
Step 3: Test the broker’s platform.
Almost all brokers describe their tools and resources. Still, you need to test their platform to test the quality. Ask a broker to allow you to open your account for free and test the features. Most brokers allow their platforms to be used for free because they can earn from other resources. If the broker’s platform is according to your needs and investing style, you can select that broker.
Step 4: How a stockbroker educates his clients?
It is important to consider how much technical and educational support an online broker offers? When you are a beginner, you need some help to interpret data and make sure that the broker provides this system, and you can get answers to your questions. The trading platform should be advanced and user-friendly. It must have all the features that a modern trader needs. So, if you can find a platform where you can get basic knowledge and education, then it can’t be anything better than this.
Step 5: Deposit and withdrawal
Some stockbrokers have complex deposit and withdrawal systems. It is the most important factor while choosing an online stockbroker. Make sure that deposit and withdrawal are simple and easy.
How to choose your stockbroker? It is not that simple as it looks. You will have to consider lots of factors before choosing the best broker according to your investing style. Your first broker doesn’t need to be your broker for a lifetime. Your life will change, and your needs and investing styles will change in the future, so does your stockbroker.
When you are a beginner, you can be trapped in massive fees and commissions. Before choosing any broker, read their fees structures, withdrawal fees, and commissions. If you want to make money in the future, choose the right broker, and spend some time in finding the right broker for you.
Sky Hoon. Read Full Bio
Website Owner, Twitter-er
He has been trading since 2008. He started this blog to share the journey about option trading. He dabbled in stocks, bitcoin, ethereum (in Celsius Network), ETF (lazy Dollar Cost Averaging) and also built websites for fun. He used this as a platform to share my experiences and mistakes in trading, especially options which I just picked up.