Finding a great stockbroker for your specific needs is crucial to succeeding as an online stock trader, yet it’s a decision that many online stock traders rush. The reason for this is mostly due to the fact that there are so many brokers to choose from, and the research can quickly become overwhelming.
Luckily, there are some quick shortcuts you can take when looking for a broker, and in the following article, we’ve listed the top three things to consider when picking the right broker for you.
Difference Between Trading and Investing
Please note that this article is dedicated to online stockbrokers, ie. brokers offering stock derivatives, and not to traditional stockbroker such as Ameritrade och Charles Schwab. That means that the brokers we discuss offer speculative trading and investment opportunities, but not opportunities to be paid dividends, etc.
There are many benefits to using online brokers. Some of the main ones are the option of trading other assets such forex, cryptocurrencies, and commodities, free trading education, demo accounts, and the option of quickly open short and long positions, to mention a few.
The number one thing that you have to consider when picking a broker is whether the broker is licensed and regulated or not. Using a non-regulated online broker is a recipe for disaster and should be avoided at all cost.
You see, a broker that has been issued a license from an internationally acclaimed regulatory body has gone through a lengthy process of proving its legitimacy. Moreover, regulated brokers are subject to regular audits and have to be extremely transparent in order to not lose the license.
Today, there is a plethora of regulated brokers that one can pick from and some the main regulatory bodies are:
- The Financial Conduct Authority (FCA) in the UK
- The Cyprus Securities and Exchange Commission (CySEC) in the EU
- The Australian Securities and Investments Commission (ASIC) in Australia
- The Financial Sector Conduct Authority (FCSA) in South Africa
With that said, instead of researching broker licenses on your own, it’s suggested that you stick with brokers recommended by third parties. On BullMarketz.com, you’ll find recommendations of the top brokers in most jurisdictions around the world.
When you’ve found a broker that is licensed and that you think could suit your needs well, you need to test the platform. This is a crucial step since settling for a broker with a platform that you don’t like or understand, will limit your opportunities of making good and profitable decisions.
The best way to test a trading platform is to open a demo account with the said broker. A demo account is an exact replica of a regular trading account with the only difference being that you use virtual funds instead of your own money. In turn, this means that there is no risk of losing anything, meaning you can test all the available tools to see if it’s what you’re looking for. Subsequently, a demo account can also be used for practice and strategy development.
An important part of this step is also to ensure that the assets and stocks you want to trade and invest in are offered. Every broker has the option of creating their own selection of stocks and therefore, they tend to differ.
The most common setup is that brokers offer major stocks from Europe and the US but many of them also provide access to stocks from local exchanges. For the sake of convenience, regulated brokers have detailed lists of all their assets on their websites.
Bonus tip: check what other assets and markets the broker offer because, as mentioned, in addition to stock trading, these brokers allow you to trade forex, cryptocurrencies, and many other assets.
Lastly, before you register an account and start trading, you have to evaluate the fees you will pay for every position you open.
Unlike traditional stockbrokers, most online brokers are commission-free. Instead, they charge spread (the difference between the ask and bid price) as well as certain non-trading fees.
The goal is to find the cheapest regulated broker that has a platform you like. Keep in mind that some brokers have higher fees for stock trading than, for example, forex trading and vice versa.