Online trading has never been more popular. Today, there are more than 4 million active stock traders in the world, and they transact trillions of dollars' worth of assets and securities a day. All of this is possible through a reliable and reputable broker. In fact, if you would like to get started on trading, having a trusted broker is the first step on your journey to success. But with the abundance of options online, how can one choose the broker that is best for them?
The short answer is – there is no such thing as a ‘best’ broker. A broker is only as good as how well it meets your needs as a trader. This is a highly personal choice, based on factors like your trading experience, your risk appetite, the products and instruments you want to trade, and the tools you need to trade. Therefore, you should make sure not to compare your choices with that of fellow traders.
In fact, in this article, let’s look at how you can choose the best broker for you. Note that the below is not an exhaustive list and may be apply to everybody. It is important to be discerning when reading the list below.
What does a broker do?
We should start with the simple question – what exactly does a broker do? Why do people need them when they trade? In truth, a broker is an individual or firm that manages transactions between investors and securities exchanges. They act as middlemen, facilitating these trades. They also provide information such as market price for different markets, store customer data, provide trading information, and generally help traders execute trades.
Brokers fall into a range, and they can be categorised depending on their type: online, discount, and full-service.
Online brokers
Online brokers exist purely digitally, and they are usually global entities that allow traders to take part in financial markets from anywhere in the world. (Regional restrictions apply.)
Discount brokers
Discount brokers are brokers who buy and sell stocks (and facilitate transactions) with lower commissions than most brokers in general. They may also sell insurance products, but they do not transact on their customer’s behalf, nor do they offer investment advice.
Full-service brokers
A full-service broker is a broker that provides a range of professional services to customers, such as wealth management, tax tip, research, and more, on top of investment opportunities.
Factors to consider when choosing a broker
Operation location
Naturally, the first thing you must consider is whether the broker operates in your location. This can be a local broker or an international one with presence in your region. Most online brokers are open to traders from anywhere in the world, but specific instruments may be available only to specific groups of traders.
Instruments offered
The most important thing, outside of where your broker operates, is the instruments and products they offer. If you want to trade certain derivatives, such as CFDs and options, you should ensure the broker provides these contracts. You should also make sure the broker offers specific stocks you want to trade, especially if they are not blue-chip stocks.
Trading fees
Next, you should consider the trading fees that the broker charges. There are many different types of costs, such as transaction costs, commission, spreads, overnight fees, and more. You should make sure the fees stated are transparent and there are no hidden charges when you trade, which can save you headache down the line and allow you to accurately assess your profits.
Trading platform
Some brokers offer bespoke platforms with easy integration with third-party tools. Others use the industry’s platforms, such as MT4 and MT5, with their own add-ons. The key is to know what your options are and making sure you are comfortable with the platform you will be using to trade.
If you are an experienced trader, you will also benefit from trading platforms that have a higher level of customisability and sophisticated tools. For example, Saxo Bank has multiple trading platforms for traders of different expertise levels – SaxoInvestor, SaxoTraderGO, and SaxoTraderPRO. Their key difference lies in the tools available.
You should also make sure you can access these trading platforms from your preferred device. For example, if you are always on the go, you should make sure your broker has a mobile app that can allow you to trade anytime, anywhere. If you prefer to sit at your desk, you may want to choose between logging in from a web browser or downloading a desktop app.
Account tiers
Many brokers offer multiple account tiers to cater to their different types of customers. They may also offer different account types for the individual, professional, or corporate investor. These tiers often allow traders to trade with different spreads and commissions, and they stipulate different minimum deposit amounts, for a good reason. If you are a high-frequency, professional trader, you may be able to trade with a sliding-scale commission so the cost per transaction is not as high as a regular trader.
Reputation
Even if you have decided to go with brokers with established credentials and experience, you may still want to consider how they operate from a customer point of view. This is how you can determine if a trader is right for your style and preferences. You can do this by searching for trustworthy reviews and testimonials, and you can validate your choices by hearing from family and friends who use the broker’s services.
Educational resources
A good broker should encourage you to develop your skills, whether you do it with them or externally. A great feature you can look for when it comes to considering brokers is the kind of resources they can offer when it comes to financial education. Do they have articles that you can access? Do they provide topical, live market updates? Do they offer walk-throughs of their trading platforms? Do they have guides on certain products and glossaries? These may be bonus features for traders, but they are important, as ultimately, you want to keep improving your skills and you need somewhere to do it.
Customer support
Finally, you should see if the broker offers professional customer support. This is a must-have, as you may experience IT or account issues when you are trading, and you want to have a reliable point of contact. Check out their support capacities, such as their contact methods, operating hours, and languages offered. If you want to put their support team on a test drive, you can reach out and inquire about a broker’s accounts before signing up for one.
The bottom line
Choosing a broker to work with is a personal thing, and you should assess what your needs are before you settle down with a broker. Consider the instruments you plan to trade, how you plan to trade them, your budget, and your risk appetite. You should also understand that trading does not guarantee profits and be realistic about the amount of capital you can afford to lose. If in doubt about a broker, you can often assess a demo account they offer to simulate trading. You can also contact customer support for investment advisory.
