With the ever-increasing competition in the online brokerage space, one thing is for certain: you, the consumer, will benefit the most.
But a natural implication that competition created is the challenge of finding the ideal broker out of the literally thousands out there. That’s where we come in…
With this guide, we aim to help you choose the right broker for your needs by simply asking yourself 6 questions. We promise that after you go through this guide, you will have the confidence to immediately open an account with your ideal online broker to start trading.
Let’s get started…
- What Assets are you going to Trade?
Perhaps the most important question you need to ask while browsing for online brokers is what assets you are looking to trade. Not all online brokers provide access to every kind of asset out there.
Here are some common assets that brokers may offer:
- Mutual Funds
- Precious Metals
So, don’t open an account before you make sure that your broker can give you access to all of the assets you are looking to trade.
What Currency are you Going to Trade In?
If the currency of your account (the currency that your cash is in) is different than the one that you need to buy an asset, your broker will most likely have to convert it to the latter. And you will be charged a fee for this service.
Also, some brokers may not allow you to have your fund in the currency that your country uses. These firms will probably only accept your fund in a certain currency or automatically convert your currency every time you deposit. That will also cost you.
So, find out what the case is with the brokers that you examine and what fees they charge for these services.
How are you Going to Fund your Account?
Not all brokers offer the same deposit methods. Depending on how frequently and how quickly you’d like to fund your account, you will need to consider the options available to do that.
Here are some common deposit methods:
- Wire transfer
- Direct Automated Clearing House (ACH) transfer
- Online payment
- Check Mail
There could be fees associated with funding your account (apart from these that your bank charges). The more frequently you want to transfer funds to your brokerage account, the lower these fees need to be.
But the deposit options a broker offers can be important factors, so you might be able to reduce your cost of funding by selecting the broker with your ideal deposit method.
Also, some traders prefer to not keep too much cash in their accounts and need to take advantage of trading opportunities fast. If that applies to you, you need a broker that supports instant deposits. This option makes it possible to start trading with money that you have ordered to be sent but hasn’t settled yet.
What Is Your Trading Style?
Another very important thing to consider is your trading style. Based on this, you will be able to determine if the fee structure of your broker suits you.
Here are some common fees that online brokers charge and how much they impact you depending on your strategy:
- Trading Fees
These can be either charged as a commission, which is basically a certain percentage of the amount for every transaction or a fixed amount every time you make a transaction. The more active you are when trading, the more significant these fees become.
The spread is the difference between the bid (buy price) and the ask (sell price), so it is effectively a cost that you incur on every transaction. If you bought an asset and sold it immediately afterwards at the market prices, you would naturally sell at a loss since the ask is almost always higher than the bid.
- Margin Interest Rate
If you’re planning to trade on margin (with money borrowed from the broker), then compare margin interest rates. The lower the rate, the higher your return.
- Research and Market Data Fees
Many online brokers also provide research and market data tools for experienced active traders. Some of these tools may involve a monthly or yearly paid subscription program.
- Inactivity Fee
Some brokers apply this fee when you haven’t made any transaction for a long period. If you’re an active trader, this will never be a problem. But stay alert if you’ll be employing a passive.
- Trading Fees
What Is Your Available Fund to Trade with Now?
Keep in mind that some brokers require you to have a certain fund size to deposit before you can open an account with them.
This is not as common as it once was, but it’s important to keep an eye out for it if you don’t have a lot of money to trade with right now. Account minimums can range from $100 to $25,000.
- How Much Help Do you Need?
Last but not least, consider your knowledge level.
Let’s say that you are going to trade on your own but don’t have a lot of experience. In that case, browse reviews on the education materials that brokers provide before you choose any of them. Sometimes, these materials can prove very helpful for experts too as they show you how to apply the knowledge using the broker’s platform.
On the other hand, if you aren’t planning to trade on your own, you should check for any advisory services that the broker may be providing. Take the time to read some reviews and see how much this would cost you.
As you can see, choosing the right broker isn’t difficult. It just takes one to know what to look for; with this guide, you will.
Once you choose your broker, make sure that you equip yourself with the knowledge you’ll need to trade successfully. No matter what type of trader you are (active or passive), we can help you start your trading journey with confidence.
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