Choosing your broker

In the past, buying and selling stocks used to be a telephonic affair; you'd call up your broker and request them to transact on your behalf. Nowadays, most brokers provide an online platform. By logging into your account, you can trade shares with just a few clicks.

Starting with an online brokerage is a straightforward process. After opening and verifying your account by providing necessary identification, like proof of address and passport, your account goes live. The next step is funding your account. You can transfer money from your local bank using a check or wire transfer. Today, many brokers allow starting a brokerage account with as little as $2,000-$3,000. Once your account is funded, you are ready to trade.

There's a myriad of brokers out there, but the right one for you hinges on your investment approach. As an active trader, you might require a different type of broker than a long-term investor. Similarly, trading currencies or forex might demand a separate broker. Thus, you must find a broker that matches your requirements and aligns with your financial goals.

Here are some key considerations while choosing a stockbroker:

What are the Commission Rates and Other Charges?

Commission rates are a significant factor to consider. For a short-term trader, undertaking numerous transactions each month, commissions can be a substantial expense. However, as an investor who transacts less frequently, let's say once every six months to a year, commissions may not significantly eat into your capital. But it is always prudent to select a broker with reasonable commission rates.

Depending on the broker you choose, the commission you pay could range from a dollar to fifty dollars per transaction. While most US brokers charge a minimum commission of eight dollars per transaction, discount brokers can charge as low as a dollar. However, there's usually a catch, like a requisite minimum number of trades each month.

For example, TD Ameritrade's Thinkorswim charges a fixed eight dollars per transaction, irrespective of the number of shares you transact. Conversely, Interactive Brokers charges per share, with a minimum commission of a dollar per transaction.

It's important to note that some brokers, like Interactive Brokers, may require a minimum number of trades per month (around twenty or thirty) to maintain the account. Failure to meet this quota results in a minimum inactivity fee of twenty or thirty dollars. Thus, understanding your trading frequency and the corresponding commission structure is vital in choosing a broker.

Are there any Additional Charges?

Some brokers may charge for additional services like data feeds or for providing access to trading charts. They may also charge a custodian fee for holding the shares on your behalf. It is crucial to go through the broker's fees and terms and conditions thoroughly to ensure you're aware of all potential charges.

Is the Broker Financially Stable and Regulated?

Ensure that the broker you choose is reputable, financially stable, and regulated by the appropriate authorities. Checking the financial rating of the broker can provide insights into its financial health. Also, always prefer brokers regulated by the US or Australian authorities.

Remember, low commission rates and a small minimum deposit amount can be too good to be true. If a broker offers free services, they're likely making money in some other way. Make sure to use brokers that are reputable, like Interactive Brokers, which is listed on the US stock exchange and regulated.

What is the Minimum Deposit?

Most brokers require a minimum deposit of about $2,000 to $3,000. This standard is pretty consistent across the board, but always double-check.

What are Margin Rates?

Margin rates refer to the interest charged by brokers on loans extended to traders for purchasing stocks. As a long-term investor, it's advised not to use margin as it can be risky. Therefore, this factor may not be as crucial for investors.

How is the Broker's Trading Platform?

Consider the quality of the broker's trading platform. Does it have user-friendly charting software? Is there an app for easy transactions? Many brokers offer a demo account where you can test the platform before going live. Ensure you're comfortable with the platform before committing.

What Range of Products and Markets do they offer?

Check the markets and products a broker offers. No matter where you reside, with the internet, you can access markets worldwide. It doesn't matter if you're in Singapore, India, or Malaysia, you should invest where the opportunities are best. For example, Interactive Brokers offer global market access, while Thinkorswim by TD Ameritrade focuses primarily on US markets.

What about Customer Service?

Customer service quality is often overlooked. The best way to gauge this is by shooting them some questions and seeing how they respond. Do they revert promptly? Are they patient with your queries? How well do they communicate? If they provide exceptional customer service, that's a good sign.

A great resource for broker comparisons is the website brokerage-review.com, which offers a comprehensive review and ranking of various brokers.

The choice of a broker is a highly personal decision, and what works best for you may not work for someone else. From my experience, Thinkorswim by TD Ameritrade is a user-friendly platform that has fantastic charting software, making it great for long-term investing.

On the other hand, Interactive Brokers is more suited for short-term traders who make numerous transactions each month. They have lower costs per transaction but require a minimum monthly transaction volume. Both have been reputable, well-regulated, and have served me well.

In conclusion, selecting the right broker involves a close examination of your investment strategy, understanding the costs involved, assessing the broker's platform, and checking the customer service quality. With these factors in consideration, you are one step closer to your successful investment journey.