If you wish to invest in the stock market, you have to do it through a stockbroker. You cannot buy or sell shares directly to the stock market without registering with a broker.
Since there are many stockbrokers on the market, selecting the right broker can be a challenge for investors.
As a new investor, you need to know which criteria you should consider when choosing a stockbroker to have a better experience.
The following tips will contribute to help you to create a shortlist of brokers before making a final decision:
Decide on the type of service you want
Stockbrokers provide many types of services. To select the type of service that suits you, you should consider your financial requirements and level of confidence and knowledge of the market.
Here are three main types of service provided by brokers:
- Execution-only service. This is the cheapest way of trading. You can choose this kind of service if you are a DIY investor (do-it-yourself) who has confidence and a good knowledge of the market and trust that you can make investment decisions on your own without the need of getting financial advice. Under this accord, the broker performs your orders without giving any financial advice.
- Advisory service. Under this contract, the broker offers investment advice, but you can still take or reject the advice. This type of service is more expensive than execution-only. Brokers usually charge per transaction and not necessarily per advice.
- Discretionary service. Under this agreement, the broker manages your investment portfolio. You consent to give him the authority to make investment decisions on your behalf and inform you later. This type of account is ideal if you are a busy person who does not want to allocate your time to learn the market or be involved in the complexity of investment decisions in a dynamic market.
Look at the charges
It is important to consider the trading commissions when it comes to choosing a stockbroker. Feel free to shop around to find a broker that provides excellent services at a lower cost. If necessary, use online stockbroker fees compared to find better options. It is always advantageous to find the cheapest way to trade.
Stockbrokers mainly charge a flat fee per transaction, a percentage of the trade value or a sliding scale pricing method depending on the amount invested.
Some stockbrokers charge monthly fees considered as administration fees even when you are not trading.
Commission fees can vary depending on the type of services provided by the broker, the volume of shares you want to order and the method you choose to place your trade (online (which is the least cost option), an email to the trading desk or a call to your broker).
Consider the location and ability to contact your broker
Research shows that location and ability to communicate with a broker are essential for investors in their choice of broker. It is more comfortable dealing with a broker you know you can easily contact when necessary.
Bear in mind that it is possible to experience issues with online platforms. You also want to avoid long waiting times on the phone.
You should as well consider how long it takes to expect a call back from your broker after an enquiry.
Some investors prefer a local broker because of the possibility to have face to face discussions and get access to professionals who can better advise on the performance of selected shares in the country.
Know the speed of execution of your order
Contrarily to what many investors think, it takes time for a broker to execute trades. Orders you place via online platforms are not directly executed on the market. So it is crucial to have a broker who can execute your order in the best set of time especially in a dynamic and fast-moving market where the price of shares can rapidly change.
Here are few some other questions you might ask:
Is the brokerage firm licenced and authorised to buy or sell financial securities?
What is the level of the brokerage firm’s expertise?
How efficient are the broker’s administration and record keeping systems?
Which information to expect from the broker, the frequency and quality of information provided?
Many investors open different accounts with several brokers to stay on the safe line and avoid the element of surprise. You can also ask for referrals and get views from other investors who have dealt with a particular broker.
I hope the above helps. I am sure there are more to add on this topic. I can’t wait to read your comments if you have further criteria or advises to share.