This is one of the very first questions asked by newbie Investors and Traders. And unarguably the most important too. Selecting the right Stock Broker at the beginning is the very first criteria for long term success in Financial Markets. It becomes very difficult for a beginner to chose the right broker when there are 100’s of them out there, each boasting highly of their services. The intent of this post is to make you aware of few important parameters which are necessary to evaluate when you select your Stock Broker. This article is not just suitable for beginners, but also for Experienced investors who want to switch their brokers. We do not want to recommend any specific Broker as of now.
Check out the below important points which would help you to select your Stock Broker
This is the very first criteria you should evaluate while selecting your Stock Broker. There are two kinds of brokers which exists in market today: Discount Brokers and Full Service Brokers. Discount Brokers charge a very low brokerage, mostly a flat rate per order irrespective of volume. While Full service brokers charge higher brokerage comparatively, but they offer multiple facilities like IPO investment, mutual Fund investment, research reports etc. Always remember that Discount Broker is not the best because it offers low brokerage, there are other factors too which needs to be considered. Please read through to understand those factors.
Margin Trading has been a boon for retail investors from last decade. Its very important to check how much margin your broker offers for Equity cash as well as Future. If the broker offers 5 times margin, then you can buy Stocks worth 5 times with your investment amount. New brokers in the market are very conservative in providing margins
With the advent of Electronic Trading and Algorithmic Trading, it’s important to have a stable and powerful Trading Platform. This platform is an application from where we place our orders. Modern Brokers do have charting and back-testing enabled in their Trading platform which is super handy for technical analysts. You should always ask the broker regarding the stability of their platform and historical availibility. Also, its important to check if the broker offers any mobile application for Trading or not. Trading through mobile app is very useful for part-time traders.
Are you a Trader or Investor?
This is the question you ask yourself before you select your Stock Broker. A Trader holds his positions for a short time (typically 1 to 5 days), while investor holds position for long term (6 to 12 Months). Clearly Trader would place orders frequently and end up paying more brokerage. So discount broker is always advisable for Traders while Investors should go for Full Service Brokers as they can benefit from add-on facilities like research reports, IPO investments etc.
Withdrawal and minimum Deposit
You should always ask your broker about their withdrawal mechanism. Withdrawal should be processed typically within 2 days of request. Any delay can be frustrating and would decrease the credibility of the broker. Also there should not be any cap on minimum deposit you make for the first time.
You would never want to endlessly wait to get into a phone call with your Stock Broker’s executives. So this is one of the most important thing to check before you select your Stock Broker. The turn around time for any customer complaints and technical issues should not be more than 24 hours. Also, check for the charges for Order through phone service.
Few more things you should Compare
To end with, below are few more important parameters you should compare before you select your Stock Broker:
- Brokerage on Options Trading
- Charges other then Brokerage
- Referral Schemes
- Mutual Funds service
- Compatibility with your Bank Account
- Number of existing customers
- Customer Reviews