8 Things to Know Before You Choose a Broker

If you are just starting your investment journey, choosing the right broker is the first step. You need to find a platform that allows you to reach your financial goals while providing you with a user-friendly experience. Here, we look at a few important criteria you need to consider before you open a brokerage account.

Trading costs and commissions

The most important aspect while choosing an online broker is to look at the platform’s cost per trade. It is basically the fees a broker charges the user to execute trades on the platform. These costs can easily be compared, as most brokers have published them on the websites.

However, it is important for potential investors to deep-dive into these costs as generally, brokers have multiple fees and commissions that they charge. While a broker will have a low cost associated with buying or selling stocks, they may charge higher fees on sophisticated instruments such as futures and options. Even for a passive investor, the commissions to trade instruments such as mutual funds or ETFs will vary across broker platforms.

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Minimum investment amount

There are few brokers who require investors to deposit a minimum amount into their accounts before they start investing. These amounts may amount to a few thousand dollars which may be out of reach for beginners who will then have to switch platforms. It makes sense to look at the minimum amount requirements (if any) before you start investing on a platform.

Online reviews

There are several brokerage review websites that compare different brokerages and lay out their pros and cons. One such brokerage review platform is Investimonials that has reviews for most of the top brokers available in the U.S. It allows users to review brokerages and discover the best financial platforms that will help you save and invest better.

Peer-reviewed platforms may allow potential users to get first-hand information from current customers and accelerate their decision-making process.

Investment options

Another important aspect to consider is the type of investments allowed by a broker. A passive investor would like to have access to ETFs and mutual funds. Alternatively, an active trader would want the broker to provide instruments such as options trading.

Further, investors nearing retirement or those with a low-risk appetite would like to have a diversified portfolio of stocks and fixed-income bonds while a millennial trader would want exposure to cryptocurrencies. While no broker will provide you with all the options mentioned above, you need to consider the types of investment options available at the platform’s disposal.

Access to investment research and advice

In the last fifteen months, the shift towards do-it-yourself (DIY) investing has accelerated due to a plethora of tools available for the newbie investor. However, there are still a lot of investors who have limited time and knowledge of the stock market and would like to bank on professional advice to buy and sell financial instruments.

Here, you will need to investigate if the platforms provide you access to institutional-quality research that is extremely expensive to procure. A few brokerages also provide users with limited investment advice while the unique selling point of other platforms will be an end-to-end investment advisory service.

Types of available accounts

The largest and most popular stockbrokers will offer investors different types of retirement accounts to park their savings. You may want to open a regular investment account as well as retirement accounts such as IRA and the Roth IRA.

A few investors would also want to open a custodial investment account such as the 529 account for their children. It’s always advisable to look into the type of accounts a stockbroker provides before you start investing on the platform.

Investment and trading tools

In case you are a DIY investor, you would want the broker to provide you with multiple tools that will allow you to identify quality stocks and accelerate your investment process. For example, investors would want to filter stocks on the basis of their valuation, growth, or dividend yield. Some may even want to analyze which stock is trading at a discount or a premium compared to consensus estimates before making an investment decision.

User-friendly website

Finally, after you choose a broker that meets most of your requirements, it is advisable to subscribe for a free trial and test run the platform. You need to ensure that a broker platform is easy to understand for you to execute hassle-free trades.

It’s of little use in case a platform has lower fees but a complicated interface that takes several steps to purchase or sell financial instruments.

The final takeaway

Researching a brokerage platform can be likened to buying a car or a house. There are multiple factors that need to be analyzed but it is impossible to find one that will meet all your needs.