There are risks of fraud in every investment and the risks increase when it has to do with online businesses that involves hiring an online broker where the investors have no personal relationship with the broker. So financial regulators always warn potential investors to make a proper research about online broker they plan to hire thereby making sure that they are licensed. Choosing an online broker is a very important decision to make as an investor.
Each trader has a unique way of investing in stock, options or currencies, so they are meant to choose a stockbroker who best suits them. Once you decide to invest in online trading, the broker and brokerage firm are two important relationships you should have. Be it a stockbroker, bond broker, commodities broker or an all-purpose brokerage firm.
Who is a broker?
A broker is a person licensed to trade stocks through an exchange and the person usually charge commissions for his services. The best way to begin to invest is to open a brokerage account (a taxable account which you open with stock brokerage firm where you deposit cash either by check or transfer) first.
How to Choose a Stock Broker
Stockbrokers are grouped into two – full-service stock brokers and discount stock brokers. Each has its own pros and cons. So how do you know the one you need?
- Full-service stock brokers – when you open a brokerage account with a full-service stockbroker, you are opting for someone who will become your sounding board; who answers phone calls and places orders for you. The person may suggest investments for you and help you take certain decisions. So he charges you commissions which are usually several times that of a discount broker. This type of broker and the firm that employs him generate much profit for the firm.
- Discount stock brokers – discount stock brokers provide tools for you to trade by yourself. You handle all orders both the buy and sell orders. No one is coming in between you and your money anytime you want to invest. This type is ideal for professional and experienced investors who manage their own money because you shouldn’t pay for services you don’t need. Eg E*TRADE is a discount brokerage account. Some firms offer both accounts to investors giving them the opportunity to make their choices.
Factors to Consider When Choosing an Online Broker
- Costs – you should know the cost of buying and selling others online and avoid incurring miscellaneous fees.
- Features and tools – having access to a fully featured web-based trading platform can make a great difference.
- Products you are investing in – what you are trading on, whether only stock, options, forex, ETF should be put into consideration.
- Customer support- will you like round the clock service or less.
- Regulation – your broker should be licensed and regulated.
Putting these factors together will enable you to make the right choice for the online stock broker that best fits your needs.