Once you have made the decision to start investing in the financial markets the first step you need to take is to set up an online brokerage account. With an online brokerage account, you can buy and sell securities, manage your portfolio and use its tools and services to help you make investment decisions. When it comes to choosing an online broker there are several things to look out for, which will be discussed in this post.
Transaction Fees
The transaction fee also referred to as commission is the amount you are required to pay the broker every time you execute a trade. Commission varies from brokerage to brokerage but is usually somewhere in the $5 to $10 range. This might not seem much, but if you are building a portfolio of 25 securities it will already cost you $250 just to purchase all the securities if the commission is $10. Hence, choosing a broker with low fees is important.
Range of Investable Products
The types of financial products you can invest in are also a key deciding factor when choosing a brokerage. If, for example, you want to build a diversified portfolio of stocks, bonds, ETFs, REITs and commodities you need to choose a broker that has all these products on offer and preferably a wide range of each of these. On the other hand, if you only want to buy, for example, a range of U.S. stocks then choosing a broker with a lesser product range is absolutely fine.
Aside from low transaction fees and a suitable range of products other aspects also play a role when choosing what online brokerage to sign up to. Those are the tools and services on offer, the quality of customer service, the broker’s reputation and its ownership structure.
Tools and Services
When choosing an online broker it is also important to ensure it offers excellent tools and services. For example, does it offer a mobile app? Does it provide easy-to-use chart analysis tools and a financial news service? Does it have a good financial education section that can quickly help you understand anything that might be confusing, such as advanced financial terminology? Having great tools and services at your disposal will make your life as an investor much easier so ensure you choose a broker that can provide those.
Great Customer Service
Having great customer service is key for any business in this day and age, and that does not exclude online brokerages. If you have a query regarding a transaction or a question about how the trading platform works it is important that your brokerage has a great customer service team that responds to all your questions in a timely manner.
Reputation
Choosing a broker with a good reputation is important. If you find a lot of negative reviews about the brokerage you are looking to sign up to then avoid it. Make use of comparison sites to find out how good a brokerage’s reputation is and what former users are saying about it.
Ownership
And finally, you should also have a look at who owns the brokerage. There are two reasons for that. Firstly, if it’s a small stand-alone business then there is a higher risk that the brokerage might go bankrupt, which would lead to a massive headache for you as an investor, as the process of getting your money back and your securities transferred to another brokerage account is a big hassle. And secondly, if the brokerage is owned by large asset management companies, then you can expect to be marketed their funds and products above others. However, those might not necessarily be the best financial products to invest in. So be aware of that when choosing a broker owned by large fund managers.
It is important to choose a broker that is right for your needs as an investor. Having the right brokerage account can save you money and provide you with the right range of products and investment tools so that you can build a strong diversified portfolio that generates the returns you desire.
If you want to learn more about how to get started with investing, sign up to my investment e-learning courses Stocks for Beginner and Bonds for Beginners today!
