Choosing The Right Stock Broker:

Posted by Nick Niesen on November 8th, 2010

The stock market is a very volatile trading place and choosing the right stockbroker can make all the difference to an investor/trader. Nowadays, many investors/traders are latching on to online trading and there are many stockbrokers out there who offer online trading at discounted commission fees. So, how does one pick a good stockbroker? The following guidelines will help an investor do that:

1. Brokerage fees and deposits

If an investor chooses to place his trade orders online, then the brokerage fees are very low. However, if he places his order on phone, then the brokerage fees may go up slightly. These low fees are perfect for investors and traders who have sufficient knowledge of the stock market and are clued in on what stocks to buy or sell. However, investors who do not know how to work with the market swings must choose to work with a stockbroker who supplies them with investing recommendations and trading calls. Naturally, a stockbroker who supplies investors with information will charge a higher rate of brokerage.

Every client needs to deposit some money with his stockbroker to cover the fluctuations in the price of the stocks that he buys or sells. The deposit will depend on how much financial exposure the client wants for his market trades. It is not necessary that the stockbroker who charges the lowest deposit is the best.

2. Services

Most online stockbrokers provide their clients with a range of online technical and fundamental tools that help them in making their investment decisions or trading calls. The information from these tools is streamed live and can be in the form of company news, technical buy or sell calls, favorite stock watch, chart patterns, unusually high-volume stocks, circuit breakers, etc. The stockbroker will usually charge an additional monthly fee for providing some of these tools. You must choose a stockbroker who provides you the best tools at a reasonable cost.

3. Speed

In any stock market trade, timing is critical. Prices swing in a space of seconds and it is important that a stockbroker must carry out his orders speedily and get the rates the client desires. If a stockbroker is not speedy enough in carrying out his orders, then prices may swing and an investor may not get the price he was after. Therefore, it is important to select a stockbroker who offers speed of service. This holds good for orders that are placed on phone. In an online trade, the confirmations are instantaneous.

4. Insurance

An investor must choose a brokerage firm that is a member of the SIPC (Securities Investor Protection Corporation). SIPC protects investors in case their brokerage firm faces financial hardship or is liquidated. Being a member of SIPC gives out a signal to the investor that the brokerage firm places a lot of value on its clients' interests.

5. Reputation

A quality stockbroker has a clean reputation. He does not indulge in shelling out contradictory and manipulative information to his clients, charges reasonable brokerage, gives purchase and sale confirmation contracts in time, does not recommend stocks that his firm already holds with a view to dumping them on the clients, is conscientious and sports a solid reputation in the market. Investors must choose to work only with such quality stock broking firms.

6. Online v/s Local Stockbroker

Though online trades are fast catching up, an investor who is more comfortable with a local stockbroker can always choose to work with a reputed firm that has a local presence.

If an investor is careful in choosing his stockbroker, then he will be trading or investing with his mind at rest, comfortable in the knowledge that his money is being handled by trusted hands.