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How to Choose a Stock Broker

Finding the right stock broker can be overwhelming. There is a glut of brokerage companies out there—both online and full service—and each service claims to be the best. So how, exactly, can you tell which broker is right for you?

As you approach shopping for a new broker, you need to decide which services you want and how much you are willing to pay for them. Plenty of broker ratings and customer satisfaction surveys exist, but high survey scores won’t matter if the broker you choose doesn’t meet your specific needs.

Before you dive into your stock broker search, ask yourself these questions:

  • How much do you want to invest?
  • What investing strategy will you use?
  • What type of products will you invest in?
  • How much customer support will you need?

Having these answers will be critical in evaluating potential brokers. Why ask these questions? Let’s look at each one in greater detail.

How Much Do You Want to Invest?

Some brokers have minimum opening deposit requirements, some don’t. So the more money you have to invest, the more options you have. Conversely, knowing how much you’re willing to invest from the beginning will help eliminate high-minimum brokers right away, saving you time.

What Investing Strategy Will You Use?

Depending on your investing strategy, you may favor one broker over another. Here are a couple points to consider:

The cost of making your trades will vary by broker (commissions). Discount brokers like Scottrade and TradeKing.com which can be helpful if you trade frequently, because most average investors won’t notice the difference between these brokers and ones that charge more.

If you’re a buy-and-hold investor and plan to trade infrequently, commission rates should be on your radar, but you should weigh other factors (e.g., customer service) more heavily.

If you’re a frequent trader, however, commissions can add up quickly. Compare discount brokers and consider using one with low commissions to help minimize trade costs.

Also, find out whether a broker’s commission rate is fixed or if it changes depending on the number of trades you make per year. Many brokers offer lower commissions to active traders.

Want to trade after the market closes? Make sure you pick a service that supports it. After-hours trading comes with risks (e.g., less volume and more volatility), but with risks come opportunities.

What Type of Products Will I Invest In?

The kinds of investment products you choose is a part of your investing strategy, so make sure your chosen broker supports the products you want to trade. For example, every broker will have access to the most commonly traded stocks, but many will not have access to thinly traded issues (e.g., penny stocks).

Options trades are also popular, but some brokers have better options platforms options than others. So if you want to trade options, research brokers’ options services thoroughly beforehand so you know what you’re getting. (Finally, don’t forget that options carry an additional fee per contract traded, so if you want to trade options, factor those fees into your trading costs!)

How Much Customer Support Will You Need?

If you prefer to research, select, and buy stocks on your own, a discount broker that offers extensive research platforms will suit you well. Some discount brokers even offer a network for traders to swap trades, strategies and other investing banter.

However, if you don’t feel comfortable making investment decisions on your own (or simply don’t have the time to put in the research yourself), consider a full-service broker. Unlike discount brokers, full-service brokers will work with you on an investment strategy, usually at a higher cost.

Other Factors

Most discount brokers keep costs to a minimum by being “online only”; that means they don’t have local branches. If you prefer being able to walk into a local branch of your brokerage company for whatever reason, factor that into your decision as well.

Also, check with your employer to see if they have specific requirements for employee investing. Depending upon your employers’ involvement in securities or other financial transactions, they may require you to stick to short list of brokers they have approved for employee use.

TradeKing.com has a great balance of customer support, research capabilities, trading execution, and low commissions.

Happy investing!

Which brokerage service are you using? What other factors did you consider before picking it?

Comments

  1. Great tips, you definately need to know why your trading, how your trading, what bells and whistles do you need. At my website mainly we trade penny stocks and we do it rather quickly. still, there are many disagreements about brokers even thogh we trade similar styles.

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