How to Choose Your First Online Broker

Contents

Introduction

With the ready availability of high speed internet, online trading has become much more accessible to everyone. No longer just the reserve of the institutional banker or the high net worth individual. However it is important that you choose the right online broker to fulfill your online investment objectives. Finding the right online broker that is aligned to your investment goals is crucial, as the right broker can help in acquiring the right knowledge to make proper investment decisions and establish a steady income stream. In this article, we will look at the things that you need to look for when making your choice of online broker in order to set yourself up for success.

Full Service Broker or Discount Broker

The first thing that you have to decide is what kind of broker that you need. There are essentially two types of online brokers, a full service broker and a discount broker. Full service brokers, apart from providing online trading services, also provide a wide range of investment services such as financial planning and investment advice. With a full service broker, you can take a hands off approach and let your broker do all the work. The downside of a full service broker is the fact that the services provided come with higher fees than a discount broker.  There is also the danger of receiving poor investment advice.

Discount brokers on the other hand are brokers that provide basic trading access to the financial markets. The business model of a discount broker is to provide low cost trading services to cater for a larger market. Some discount brokers also have local offices to provide localized support to their clients in different countries. While discount brokers are able to offer lower fees, the disadvantage is that you have to make the trades yourself. In other words, you won’t have access to the full range of services which a full service broker is able to provide.

Fees & Commission

Most brokers charge some kind of fees and commission on the services offered. As these fees or commissions represent the bulk of your investment cost, it is important to pay attention to them. Trading fees can be in the form of spreads or commissions. Some brokers offer a flat fee while some charge a fee based on the volume traded. For some brokers, the fees are reduced once you exceed a certain minimum trading volume. If you are the type of investor who invests regularly, then it is advisable to look for a broker that offers this type of fee structure. Also check if the broker offers different types of fee structure for the assets that you are interested in investing in.

Broker’s Policies

Equally important when selecting an online broker is the need to examine their policies with regards to account protection, data protection and security protocols. All these factors play a part in determining the level of protection that you will receive in the event your account gets hacked and when you provide the broker with your personal details. Key policies of the broker to examine include the following:

  • Account Protection Policy

Will you be solely responsible if your account is hacked? Does the broker offer any reimbursement in the event your account was accessed without your consent and suffered losses?

  • Privacy Policy

Do third parties get to access your personal information which are provided to the broker when you open an account with them?

  • Security Protocols

Does the broker provide strong security for their servers and customer’s personal information? Does the broker uses the latest encryption technology and provide two factor authentication protection? It is important that all these security measures are in place before you sign up with broker rather than putting your assets at risk.

Investor Protection & Regulation

Another level of protection which online brokers can afford to their clients is compliance with the financial industry regulations and standards. Check if the broker is regulated by financial agencies such as Financial Industry Regulatory Authority (FINRA), Financial Conduct Authority (FCA), Cyprus Securities Exchange Commission (CYSEC) and the Australian Securities and Investment Commission (ASIC). Apart from regulatory compliance, check if the broker also offers additional protection for your investments in terms of insurance coverage or compensation scheme in the event the broker becomes insolvent.

Platforms

The trading platform supplied by the broker is another crucial factor that needs to be taken into consideration. Check and see if the trading platform is a proprietary platform or a trading platform supplied by a trading solution provider. Some of the key features that you need to evaluate include checking to see if the trading platform supports mobile trading, advanced charts, real time quotes, multiple order types, alert list and automated trading. Check also how easy is it to navigate around the trading platform.  Depending on your trading experience, you might not need all the advanced features provided by the broker’s trading platform.

Education/ Customer Support

If you are a beginner trader, the educational and customer support provided by the broker takes on a more important role. You need access to a comprehensive library of training materials to improve your trading skills. Having access to proper training materials will help to pave the way to a better trading experience.

At the same time, you want the broker to have quality customer support, so in the event you require assistance, the customer support will be able to assist you with your problems promptly. Hence, it is important that the broker has several methods for getting in touch with the support team.

Deposits/ Withdrawals of Funds

Finally, check what are the payment methods supported by the broker for making deposits and withdrawals. You need to find a broker that can support as many payment methods as possible so as to give you the most convenient and fastest way to make a deposit as well as to make a withdrawal. Also check if the broker imposes any fees for making a deposit or withdrawal.

The Next Step

When you select a broker to work with, the goal is to establish a long term relationship. But if you find that you are unhappy with the broker that you have selected, there are always the options of selecting another broker. But making sure that you have selected the right broker in the first place will help avoid any unnecessary hassle and cost as well as anxiety. As a final step before making the decision on your broker, read some of the online reviews about the brokers that you have picked. This way, you can gain a second or third opinion about the choice that you have made.