The Complete Guide to Choosing an Online Stock Broker

We have seen many changes to the stock market since its conception. As it grew, so have the numbers of stock brokers, which now number in the thousands. Consequently, it became quite a big challenge to choose one that will make us rich.

In order for our financial operations to be profitable, we need to be patient. After all, success requires time. When choosing a broker, we need to think of how they  match our needs and goals.

stock broker

Consider Your Needs and Capabilities Thoroughly

Before making any decisions, we need to know what the most important platform factor for us is. Since we all want to start trading or investing to get money, we need to make plans from day 1.

We need to make sure that our broker choice matches not only our goals but our level of education as well. However, if we have no knowledge of financial affairs, we should first consider doing some research in order to educate ourselves.

After gaining the basic knowledge of finance, our next step would be to consult experienced investors and analysts. These people can offer some insightful tips and share their vast experience with us.

Following that, we should start looking into advanced charting capabilities, mutual funds, stocks, fixed-income securities and even trade derivatives. This is the time to decide whether to be an active or passive investor, as well as to set our minds on long-term or short-term investments.

After all of this is done, it's time to reevaluate what we have accomplished so far. Now we need to know if we are going to invest on our own or hire a professional.

The amount of learning and engagement required to complete these steps depends on what kind of income we want to get from the market. Deciding between having the market as a primary source of income, as a quality of life improver, or just as a source of some extra cash is not easy.

In essence - we need to know how educated in finance we are and how far we are willing to go into the world of finances.

Narrow the Field

After we have carefully considered our knowledge and incorporated it into our goals and capabilities, we should start whittling down our options. No matter what preferences we may have while choosing a broker, they need to possess certain characteristics.

These are the things we need to consider before hiring a broker:

  1. Are they a member of the Securities Investor Protection Corporation (SIPC)?
  2. Are they a member of the Financial Industry Regulatory Authority (FINRA)?
  3. What kind of insurance does he or she offer? Make sure that the offered insurance comes with a per-customer limit of at least $500,000 with $250,000 available for cash claims.
  4. What kind of demands does the broker have?
  5. Does the broker offer Online Security and Account Protection? A certified online broker has to offer protection. There are many possibilities to do this, such as passwords, security questions, time-sensitive codes and so on.
  6. What kind of accounts does the broker offer? Is it possible to open an Education Savings Account (ESA)? What about a retirement account? Is there an investment minimum? Is there a possibility of opening a managed account?
  7. Although it's impossible to avoid fees altogether, we should try to choose a broker with as low fees as possible. Many  brokers charge a fee for closing the account or transferring funds from it.

The first two requirements are the easiest to check since they can be found at the broker's webpage. If no such information exists, we should give that broker a wide berth.

Trading Commissions

We need to know if trading commissions change depending on how much we have invested so far. Also, commissions can be different based on the security we want to invest in.

Individual stocks: a typical per-trade commission is 4–7$. However, there are brokers who charge per share as well.

Options: we will usually have to pay a commission on a given stock trade plus the per-contact fee of about a dollar. On the other hand, it is possible to find brokers who charge only one of these fees.

Mutual funds: most brokers charge a fee in order to purchase a mutual fund, but it is possible to find some who charge no such fees.

ETFs: since ETFs are traded like stocks, brokers often apply stock trade commissions here as well. Then again, some brokers have a list of unchargeable ETFs and it may be wise to find them.

Bonds: we can buy bond mutual funds with no charge at all by using transaction funds with no transaction fees. However, brokers may charge the purchase of individual bonds.

Test the Broker's Platform

If a broker has a free online platform, we should definitely sign up in order to see what he or she is offering. Looking at the platform's features and going through the process of making a trade can tell us what kind of broker we are dealing with.

trading platforms

The most important part of any platform are its charting capabilities. The more indicators are present the better. We need to make sure if it is possible to compare stocks, draw on the chart, take notes, and save the changes we've made.

How well does the broker educate its clients?

As was mentioned at the beginning of the article, beginners need education. Many brokers offer educational information on their websites. They also offer seminars we can attend. We need to make sure we can improve our knowledge by dealing with this broker.

Ease of depositing and withdrawing funds

Every broker needs to make it as transparent and easy as possible for our money to be withdrawn and deposited. We need to know how we can deposit our funds and how long it takes for the deposited funds to settle.

Customer Service

After all of this, we need to check out the "help" section on the broker's platform in order to realize whether or not it is always available to us. Is the tech support available around the clock? These findings may seem minute, but they are extremely important.

In Conclusion

It is not possible to predict every single thing before choosing a broker. However, this list can help us choose the one that is most suitable for our needs. But the first thing we need to know is how educated we are and what we want to do with our money. After we have figured that out, everything becomes much easier.