Finding the Right Brokerage and Broker for You
A brokerage account is a necessity for anyone wanting to invest money. Unfortunately, there is no cut-and-dry approach to choosing one out of the many different brokers in the world. However, selecting the right broker will affect your investing life, everything from what assets you can trade to investment costs. While it might feel overwhelming to specify only one broker to start, there is a process to finding and choosing the best broker for you and your investment strategy.
Deciding What Type of Trader You Are Going To Be
The key to finding the right broker is first deciding what type of trader you want to be and the services you will require. A position trader, someone who makes infrequent trades, will typically want to stick with a discount or full-service broker; choosing between these options depends on your interests in operating independently.
A full-service broker is best for investors who want to seek advice on investment strategies and lean on the broker's expertise. Unfortunately, full-service options are among the most expensive.
A discount broker is for those with experience in trading who want to take the reins on their investment strategy. However, before delving into broker selection, it is crucial that you understand the mechanics and language of trading, ensuring you can perform thorough research to find and vet viable brokerage candidates.
Doing the Necessary Research
Whether you choose a direct-access broker because you want to be an active trader or a discount service because you want to be more passive, your choice of brokerage houses comes down to the accounts and services you want access to.
Once you narrow down your options to a few different brokers, you will need to review the firms' disciplinary histories, which you can do by calling the Financial Industry Regulatory Authority (800-289-999). You can also check the FINRA website to review any disciplinary actions criminal authorities or securities regulators take.
Finally, you will want to check the broker's license in your state. When performing research online, it is not always clear which firms operate within which states. Call your state regulator to check licenses and protect yourself against brokerage houses going out of business in the future.
Considering More Than Costs
Many new investors get caught up in the prices of different brokerage firms. While price is a factor, it is not the most important factor when considering which broker to work with.
Services are often more important than price. For instance, if you find a broker with smart routing capabilities and avoid payment for overflow, it might be worth paying a little more.
You need to keep in mind that working with a broker is about making trades when you want to make them. While some brokers might offer the lowest prices and some of the best services, you risk losing money if its platform is weak.
Understanding Fees and Compensation Structures
As you make your list of potential brokers, be sure to review fee and commission schedules. You want to know how much it costs to open, maintain, and close an account. Knowing these details will help as you assess each brokerage and its offerings.
You will also want to investigate the compensation structure of individual brokers. Many firms offer brokers a hirer commission for selling in-house products. You do not want to work with a broker that puts their interests above your own.
Finding the right broker is about research. While no broker will meet all your expectations, you should find one that meshes with your investment strategy.
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