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5 Factors to Consider When Picking an Online Discount Broker

By on December 14, 2012

When you decide to start trading and have to choose a broker then great thought must be paid to the pros and cons of each broker with regards to your trading strategy. The broker you choose will affect the profits earned by you in trade transaction.

How much the broker siphons away from you depends on the volumes of your trades and the synchronization of your goals with the pricing policies of the brokerage. Choosing the right broker is no easy task. Several factors have to be considered before you make a final decision.

The customer service, research amenities and customer education are important parameters that need to be considered. The five most important factors to be considered while choosing an online discount broker have been listed and explained below.

Factor 1 – Cost

Since you are looking for a discount broker, cost is obviously the most important factor to be considered. The pricing policy of a brokerage may either be friendly or unfriendly to your trading objectives. An unfriendly pricing will result in a sizable portion of your income be eaten away in commissions.

Some firms have policies aimed at attracting frequent traders while occasional traders serve as the major customer base for others. At the same time, many brokerages have adopted a tiered structure for commissions where separate rates are charged for frequent traders and occasional traders.

The brokerage you choose must have its pricing policy in optimal alignment with your expected trading volumes and your trading strategies.

Factor 2 – Trading Platform Technology and Tools

Superior tools can go a long way in ensuring that chances of the success of your trading strategies increase. Several brokers provide inferior tools to the trader and assume that these tools are sufficient for any kind of trading.

Others withhold the best tools in their platform from general account holders and only give their access to those traders that reach a certain minimum trading volume.

Most brokerages provide analytical, portfolio assessment, scanning and other such general tools to their investors although these tools may themselves be of varying degrees of complexity depending on which brokerage you have an account in. Most brokerages have also developed tools that are unique to the particular brokerage.

Factor 3 – Education and Research

The scope of the education program sponsored by the firm should be of vital interest to anyone looking to open an account in a brokerage. For frequent traders, the education program serves to educate the trader about company policies and offerings, besides providing an introduction and a brief tour of the firm’s trading platform.

Over and above all this, novice traders also need to learn about basic trading parlance as well as learn the basics of formulating effective trading strategies. Brokers usually conduct education programs through live events, webinars, tutorials and slide shows.

Research tools and amenities are another feature that you need to look out for. Independent third party research as well as market scanning and research tools help you identify good places to invest in.

Many brokerages also provide access to virtual trading. Some of them even provide this facility free of cost. Virtual trading helps a person to test his knowledge of trading without being exposed to any personal risk.

Factor 4 – Customer Service and Support

A broker having an unresponsive customer service may pose to be a huge problem I the future when you urgently require help from the firm. A poor customer service may lead to most of your queries regarding the platform and market dynamics being unanswered or unsatisfactorily answered at best.

No information or even false information will hinder the development of a successful trading strategy. In addition, there might be some modifications or additions you might want done on the firms trading platform. A poor customer service may mean that there would be a delay at best or non-action at worst in responding to those requests.

The accessibility of the broker is another important issue. Make sure that the brokerage you choose is approachable 24/7. Availability of interpersonal contact through a local branch office is a huge plus.

Factor 5 – Brokerage Reviews

There are various magazines that come out with annual reviews on various sectors of the trading industry. Barron’s is one such magazine which comes out with an annual review of online discount brokers.

Over the years, people have come to respect these reviews, especially the one by Barron’s. Such reviews serve to update you about the best brokers of the year.

They also carry detailed description of these brokers and round up by suggesting which kind of traders would find a particular broker as most profitable. Reading these reviews can help you shorten the list of brokers you need consider before making the final decision.

About Peter Voga

Self-confessed coffee addict. Family man. Rage Against The Machine fan. Lover (and sometimes hater) of the stock market. Founder of BrokerChats. For more, follow me @petervoga or check me out on Facebook or Google+.

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