How to choose a broker: tips for beginners
How to choose a broker: tips for beginners
Who is a broker and how to choose him. Instruction-comparison for beginners.
You have decided to invest in securities, which means you cannot do without a broker: according to the law, trading on the stock exchange without an intermediary is not allowed. Transactions can only be carried out by legal entities that have a brokerage license - banks, investment and brokerage companies. What to look out for before opening an account with a broker? We've compiled the main points that every beginning investor should definitely study.
You've probably been reading, studying and absorbing various information about investments and the stock market lately. And finally you have decided to open an account to try your forces in practice. And this means that it's time to choose a broker.
Who is a broker in simple words
A broker is a professional participant of the securities market, an intermediary between investors and the exchange.
To obtain this status, one must meet certain legal requirements. Brokers can be banks, investment companies or brokerage firms.
Some securities are not traded on the stock market. They can only be bought through a registrar, a professional market participant, which keeps a register of securities owners. It collects, stores and transmits the information about the owners of registered securities on the basis of an agreement with the issuer.
What a stockbroker does
After you conclude an agreement, the broker opens a brokerage account and a depository account for you. The first will hold money, and the second will hold securities.
With a broker, you can buy and sell securities, trade currencies and other financial instruments. He executes clients' orders - he passes them to the exchange, gives money for the securities. Therefore, the broker is just an intermediary, and this is the difference from the trader, a player at the exchange.
In addition, the broker makes reports on cash flows and transactions, transfers funds to the bank account. He can offer the services of a financial consultant, develop trade and investment strategies.
How to choose a broker
How not to make a mistake when choosing your broker? Here are the main points an investor should consider before concluding a contract with a broker.
Reputation and reliability
A broker, like any financial institution, can go bankrupt. Or lose their license. Contact a trustworthy broker to avoid problems. How reliable the broker is, except for the presence of all licenses, can be determined with the help of the rating. Ratings are assigned by special organizations - rating agencies. The most important - the more letters A in the rating, the higher the rating and the more reliable the broker is.
You can also pay attention to the broker's position on the stock exchange. Pay attention to the documents that disclose the data on the volume of client operations, the number of registered and active clients.
In addition to the dry numbers, you can read reviews. Look for channels and blogs where real private investors discuss brokers. Look on the Internet to see if the broker has had any financial difficulties or major scandals on the eve.
Each broker offers different rates. Before opening an account, decide which one is best for you. Decide for yourself on what markets you plan to trade: stock market, futures market, over-the-counter market or all of them at once. How often you want to make transactions.
Tariffs are usually divided into those that are more suitable for beginners, those that will be comfortable for more experienced and active investors, and those that are designed for professionals or traders. Different tariffs have different amounts of commissions.
There are mandatory fees that a broker charges an investor regardless of the volume and number of trades, there are those that directly depend on how you behave in the market. And there are cases when there's no commission at all. But in this case you should pay attention to the rest of the conditions of such a tariff, perhaps the commission for another service is increased.
Here are the main commissions:
brokerage account maintenance fee;
fee for depositary services;
commission for depositing and withdrawal;
a fee for submitting orders over the phone;
leverage fees, i.e. when you borrow money or securities from a broker.
Keep in mind that the stock exchange also takes commissions. Custody of securities and other custody services can also cost money.
Availability of markets
Research what financial instruments and markets are available from the broker. Decide what you mainly intend to trade.
Convenient application and service
In order to trade the stock market, you will need a trading terminal. Almost all major brokers now offer mobile trading apps. Apps often have demo access. Download and see how you are satisfied with the interface and whether the service is convenient to use.
Ask your broker if it is possible to deposit your account from different bank cards and withdraw to any cards. If the brokerage services are provided by a bank, the bank may restrict this function or add a commission.
If you are going to open an IIS, find out whether you can receive coupon payments and dividends on your bank card instead of on your IIS. This is important when calculating your tax deduction.
Check the broker's website or app to see if you can practice investing on a demo portfolio. You can use it to put virtual money into a virtual account, trade securities, get used to the functionality and prepare yourself psychologically for the stock market.
Talk to the staff. Call technical support, write an email or ask something in the chat application. If you are just starting to invest, you may have questions. In this way you will understand in advance how the broker deals with its clients and how quickly and skillfully the staff can solve your problems.
The last point you may want to pay extra attention to is the training materials. Visit the website or see if the broker runs courses or a blog. Blog materials are usually free. They will help novice investors get a better understanding of the stock market. Courses may be chargeable.
What will happen to the money and can you get it back?
Bankruptcy insurance. In Europe for EUR20k for securities and EUR100k for cash, and in the U.S. for $250k respectively. "It's kind of like our DIA (Deposit Insurance Agency. - RBC). Brokers make contributions to a special fund. If there are any problems, clients are paid compensation. It works for everyone regardless of citizenship.
- Before you choose a broker, think for what purposes you need it, besides the obvious one - access to the exchange.
- Examine documents confirming the broker's reliability. First of all check the availability of the license.
- Become familiar with the rates: different rates are appropriate for different purposes. In addition, the amount of commission depends on your choice of rate.
- Free training is a good bonus if you are a beginner.