How to Pick a Stock Broker

How to Pick a Stock Broker

When you make stock investments, it is your hard-earned money that you are putting in, to make profits in the future. Since it is your money, you need to be extra careful with the kind of stocks you invest it in. The economic recession has seen many people lose their investments in stocks which were once considered to be absolutely safe and lucrative.

So, in order to avoid this situation, it is better that services of a professional stockbroker are sought, who can guide you precisely on the kind of investments to make, keeping the economic scenario in mind. Choosing a stockbroker, however, can be quite a task as there are numerous, online as well as offline stock brokers. To make things easier, given below are some useful tips that can help you in making the right choice.

Selecting the Right Stock Broker

Full-Service Broker or Discount Broker?
The choice of a stockbroker depends a great deal on the kind of services you are looking for. Basically, there are two kinds of brokers i.e. full service brokers as well as discount/online brokers. As the name suggests, the former will guide you on the kind of investments you should make, the stocks that you should invest in, depending upon your financial goals.

On the other hand, the discount brokers will only invest in stocks you tell them to invest in. In short, you will be the one deciding on the investment strategy. For this, you should be thorough on your market research and knowledge. So, if you are a first time investor, it is better that you opt for a full service broker, as it will reduce your risk of making losses considerably. On the other hand, if you want to take the investment decisions yourself, select a discount broker.

Another important difference between these two types of brokers is that full service brokers offer a wider variety in terms of the financial products. Stocks, annuities, insurance, bonds, derivatives – they are well researched on all these and offer investment advice on them. In return, of course, they charge very high fees. Compare this with discount brokers, who only trade stocks that you recommend. As there is no financial advice offered, the fees is very less too. So, if you do not want to pay a high salary commission and at the same time are yourself updated on the latest market news, discount brokers are a better option for you.

When Choosing an Online Broker…
If you are planning to trade online, it is very important that you check on the quality of customer service that the brokerage firm provides. For instance, in case you are unable to access your computer some day, can you still have your account information provided to you over the phone, or in case the website is slow, will you be allowed to speak personally to a stock broker – all such nitty-gritty need to be researched and asked beforehand, when choosing a broker.

Opening Deposit Requirements…
There are some brokers who ask for a minimum deposit to open an equity account. This means that the more money you have at your disposal to invest, the more options to hire a broker you have. So, check with the probable brokers if they have any such financial requirements that need to be met and accordingly choose a broker.

NASD and SIPC Membership…
The national association of securities dealers is an organization that ensures that it’s members are fair in their dealings with the clients. So, if a brokerage firm is a member of this organization, it is safer for you to make investments through them. Another thing to look for is the Securities Investor Protection Corporation membership. It will protect your assets in a brokerage account for as much as $500,000, even if the brokerage firm fails.

Other Important Tips

  • If you have opted for a full service broker, ensure that he does not unnecessarily recommend you to place a trade every now and then as these professionals earn an incentive every time you do that.
  • If you are someone who trades very frequently, go in for discount traders who charge less commissions, to bring down your trade costs.
  • If there is a particular investment product that you want to invest in, see that the brokerage firm offers it.
  • If you want specialized services, such as “After-hours trading”, go in for the brokerage firm that allows such facilities.
  • Some brokerage firms offer a low commission rates to active traders. Check this with all the broker candidates that you meet.

A very important step in the procedure is to interview prospective candidates and know about their individual qualities. A broker can be relaxed, pushy, someone who listens to you attentively takes your viewpoint into consideration or someone who might be too aggressive for your liking. So, see whether his temperament matches yours. Secondly, ask him for references.

Check with the clients he has already serviced on how he has fared with them. If the broker has been recommended by a friend or an acquaintance, it is even better. With these tips in place, I am sure now you can choose an appropriate, trustworthy and reliable stock broker who meets your requirements.