How to Choose an Online Broker

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By funkshun
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Choose an Online Broker

So you are interested in trading stocks and other securities online and you need to choose an online broker? Good for you. Growth in electronic trading has significantly lowered the cost of accessing securities markets all over the world and the spread of the internet has ensured that access to these markets is available to anyone with a decent PC and internet connection.

Here's are some quick tips to get you started with trading through online brokers.

Difficulty: Moderately Challenging

Instructions

Step 1

Locate a reputable online brokerage. The online brokerage market is extremely competitive and there are a number of good dealers out there to assist you. Make sure any brokerage you use is a member of the NASD (National Association of Securities Dealers) and insured by the SIPC (Securities Investor Protection Corporation).
Step 2

Don't focus solely on per share or per contract commissions when choosing an online broker. An account at a brokerage firm can have many incentives and disincentives that you should be aware of.

For example:

- Does the broker require a minimum initial deposit in order to open the account?
- Does the broker charge an account maintenance fee?
- Does the broker pay interest on un-invested funds left in the account? Some brokers generally do not offer interest on accounts, but will offer you a rate near the overnight money market rate if you ask them for it. Never be afraid to ask a broker for an incentive to trade with them.
- Does the broker offer a prompt and thorough trade support desk? Is support available via phone/email/instant messaging?
- Does the broker charge transfer fees if you try to move securities from one firm to another?
- Does the firm charge for mutual fund trades or to move money in and out of money market funds?
- What sort of annual fees does the broker charge for maintaining IRA accounts?
- What sort of order options does the broker offer? Do they offer market orders, limit order, stop loss orders, etc? Does the broker charge for limit orders or stop-loss orders? You should become familiar with the different types of orders available and determine when to use them when trading. Knowing how to use different order types can provide an investor with significant savings and increase profits.
- Does the broker charge for cancellation or modification of orders once they are submitted? This can be an issue when determining how much to pay for options trading fees as limit orders need to be adjusted occasionally before they are executed.
Step 3

Another important point to consider is the online broker's technology. What is the quality of the broker's software and order execution engine? This can be difficult to determine without being a modest pro but a couple of points will help you along.

- Is the broker's trading platform intuitive and do you understand how to use it? If you can't understand the tool then don't even bother trying to invest with it. The market is complex enough without your trading and analytics systems being a hindrance.

- Have there been issues with order execution or the timely execution of orders? Does the broker's trading system have any bugs in it? Were these bugs fixed in a timely manner? There are many forums on internet that discuss individual brokers and their technology and most decent brokers will provide you with a full version of their trading platform with a demo trading account. You should sign up to these demo accounts and simulate the type of trading you want to engage in before committing real money to the broker.