Once you’ve learned how to trade and are ready to take the plunge, you will only need three things on your road to success: some money to invest, a real strategy or at least a good idea of how you will do this, and a broker agent to make your dreams come true.
What is a broker?
Probably, some of you have read this introduction too fast and are still wondering why you will need a broken guy to do anything with your money. Well, you don´t need necessary a broken guy, but you definitely need a broker, a person or an institution who will conduct investment transactions on your behalf.
Whether the term of broker refers to an individual or the firm he/she is working for, they are generally able to provide you 2 kinds of services:
# A discount broker will serve you “only” to execute technically the trades you would like to make.
# A full-service broker, on the other side, will provide you, as the name says it so, a full-service that will include definitely investment advice and help with your retirement planning. If you are still learning how to trade and are quite new in the business, this option will be of course safer.
Do I (really) need a broker?
Yes and no.
When it comes to the stock market, you might know that buying or selling stocks requires access to one of the major exchanges, such as NASDAQ or the NYSE. And you must be a member of this exchange or work for a member firm in order to trade on these exchanges, which means being licensed as a broker or broker-dealers by the FINRA (Financial Industry Regulatory Authority).
It´s of course still possible for an individual investor to buy shares directly from the selling companies, but you must admit it´s very much simpler to work with a stockbroker.
How to choose a broker for trading?
Finding a broker is super easy, they are all around the Internet and some websites propose some comprehensive lists of the best stock brokers for beginners, for example.
Nevertheless, finding a broker is easy, but finding a good one is more difficult. Especially because there is no such thing as a good or a bad broker. The first thing to do is to be sure about your trading strategy, your style and main objectives since it will impact the kind of services you will need.
Once you know more about yourself, you can start comparing online brokers based on several factors:
$ What services are they offering, and does it match your goals? Obviously, some traders will be perfectly ok with a “simple” discount broker, whereas beginners could really benefit from the advice of a full-service broker. Also, whether you want to trade mutual funds, individual stocks or options, each broker will have a sort of specialty that you might like.
$ How much will they charge you for doing what you want to do? Be careful, apart from the commissions, there are other costs to be compared, such as margin interest, the costs for holding stocks, other service charges…
$ What are the extra benefits for you? Speaking about other services, keep in mind that even a discount stockbroker might give you access to several tools and resources that will help us in your trading journey.
$ What is the maximum leverage the broker can offer? For retail users, most of them leverage 1:30, which means your ability to trade will be 30 times the amount of your deposit. If you’re a pro, you can get a 1:500 leverage, but only outside the USA.
$ Will it be easy to work with them? If most of the online brokers are very reliable, they are only humans, and you must be able to use their platform without any help, and the ease of use of this platform is a really crucial element in your choice.
$ Where are they? They could be anywhere, but US brokers are often considered the most reliable since they are also the most regulated in the world, followed by UK (FCA regulator), the EU (surveyed by FINMA) and the Australia (ASIC).
$ Are they reliable? Well, good question. Some have been around for decades, while others are relatively new to the scene. The advantage of our modern world and its transparency is that it’s quite easy to get online a track record of the broker’s liability or to check reviews from users. In any case, check also their insurance in case of bankruptcy.