Before you dive into the world of stock trading, you will need to select a broker that aligns with your specific financial goals. If you are trading options, for example, the right platform for you may not be the same one for someone who is currency trading, or short selling.
Finding the right broker for your preferences and needs can be complex. With hundreds of online brokers all professing to offer the best customer service, lowest rates, and more dynamic interface it can be tough choosing between them.
Whether you are trawling through short selling brokers, options trading tools, or a broker for a beginner investor, these are five tips to help you get the right broker for your needs.
Define Your Needs
Before you do any research, you first need to define your needs. The needs of a new investor are going to be different from those of an experienced investor. A new investor may prioritize customer service, educational support, and the ability to use a virtual trading platform before they actually invest their own money.
Similarly, your financial goals will also impact the broker you choose. Do you want to make massive investments to boost your IRA or 401(k)? Or are you hoping for a more engaging experience and to try your luck with day trading and managing your own portfolio on a day-to-day basis?
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Also, it is worth taking the time to think about what kind of trades you will primarily be making. Will you be investing in stocks and mutual funds? Or are you hoping to explore securities markets? These are questions you should have the answers to before you begin the hunt for an online stock broker.
Look at the Minimum Investment and Commission
These two details will likely be two of the major factors in your decision-making process. The minimum dictates how much cash you will need to open an account and the commission and fees are the amount of money it costs to trade.
As a new investor, you will likely want a platform with low fees and small commission payments. Any savings you can make in the early days means more money to invest.
Research Your Shortlist Thoroughly
So now you know your needs, and you have explored the market to see what kind of commission different brokers are offering. Next, you will need to thoroughly research your shortlist.
Research means ensuring they are a member of the Securities and Investor Protection Corporation (SIPC), the Financial Industry Regulatory Authority (FINRA), whether or not their deposits are covered by the Federal Deposit Insurance Corporation (FDIC), and what kind of insurance the company provides if it fails.
All of this information should be available with some digging around online and going into the fine print of the company website.
Watch out for Affiliate Marketing
As part of your research process, you should be reading reviews from both customers and blogs and magazines. But beware of affiliate marketing. When you are reading reviews be aware that sometimes brokers pay reviewers to write positive things about their site and provide links to sign people up. When people click these links, the reviewer gets paid a fee.
If there is an obscure platform you haven’t seen widely discussed being recommended on a blog site, chances are, it is an affiliate marketing tool. Read plenty of review sites to get a good idea of what people are genuinely recommending and what brokers are merely paying for good reviews.
Test the Platform
A lot of online brokers will allow you to open an account for free and trade in virtual currency before you make your first deposit. There is no better way to test out an online broker than by actually doing it yourself.
You will get a sense of what tools are on offer, and even if the broker has a “Pro” section which is only accessible to those using real money, chances are if the basic platform is flawed, the Pro section will be too.
Look How Easy it is to Add Funds and Withdraw
While you are playing with the platform and testing it before you start depositing real money, examine how easy it is to deposit and withdraw. Can you do it by check, or wire, with a credit card? Are there fees associated with using a card?
Similarly, is there a fee for withdrawal? How long will it take for funds to reach your bank account? How long will it take for funds to settle after a sale? If you are day trading, these questions will be important. There is nothing worse than spotting an opportunity only to realize you have to wait for funds to settle before you can invest.