Deciding to start investing or trading stocks can be intimidating for many. Even understanding how to read the stock market pages and graphs can seem like trying to read hieroglyphics. Working with a broker can help you better make sense of your options and learn what you need to know to make smart investing decisions. Choosing the right broker to work with is just as important as determining what stocks to trade. Here are some key issues to consider to help you determine the right broker for you:
Type of Firm
There are two types of brokerages: a discount brokerage and a full-service brokerage. As their name implies, discount brokerages offer charge lower fees, but their services are pared down. Full-service brokerages charge higher fees, but they offer a more extensive range of services. Full-service brokers can provide reports and research about stocks and other investment options, give trading tips, and offer professional guidance throughout the investing process. If you are comfortable doing your own research online, then a discount brokerage may be right for you. But if you are a beginner, or need more guidance, you would benefit from a full-service broker.
There are many possible fees associated with your trading account. Some brokers may charge you a regular maintenance fee just for keeping the account open, whether you are actively trading or not. Others may simply charge you an inactivity fee if you have not made any recent trades. All brokers will charge you a commission when you either buy or sell your investments. Some will charge by trade, but others will charge by the share. So if you are moving a large number of stocks, a broker that charged a commission by the trade would be a better deal. Determine how active you expect to be with your trades when you decide what type of fees your budget will allow.
Different brokers have different account requirements. Most often, a minimum account balance may be required. This can be as little as $100 for a discount broker, or several thousand for other brokers. Make sure you are comfortable with these requirements and are willing to invest that much to start. Other requirements could include minimum trade balances, time limits, and more.
Not all brokers trade in all types of investments. Some only trade in domestic markets, while others will trade in markets all over the world. Some only deal with certain types of investments, such as particular types of stocks, commodities, or shared investments such as mutual funds. If you have preferences for the types of investments you want to make, be sure to look for a broker who can accommodate them. Choosing a broker with a range of options is also a good idea so that you don’t feel limited once you become more comfortable in your investing knowledge and are ready to try out new risks.
Service and Support
Finally, one of the most important qualities of a broker is the type of service and support you will receive. Can you reach your broker easily by phone or e-mail? What type of support services are offered? Do you have to pay extra for these services? You need to trust your broker and to feel that your needs will be met. If you don’t feel this way during your initial interview, or in the early days of your relationship, switch to another brokerage.
Choosing a broker is an important decision that can affect the success of your financial planning. Be sure to consider each of these issues when you are researching brokerages and interviewing individual brokers. Your long-term financial success may depend on it.