Picking a Stock Broker to Trade With
Most beginner traders stick with the big bank they currently deal with, as all the big banks have their own trading accounts available. Generally, it is easier to just open an account or link up to your existing accounts and start testing the waters of stock trading. It also probably feels safer knowing your hard earned money stays with your bank as well and not in the hands of some profit seeking organization. But, as you become more comfortable with trading stocks, you may begin to realize that you don’t have to be paying higher commissions (which obviously cut into your potential profits) and that there may be better and more advanced trading tools elsewhere. Of course there is nothing wrong with trading with bank trading accounts, but even if you decide to stick with this route you should also consider the differences between the different big banks and what they offer.
Nowadays, with the wide use of the internet as a medium for information sharing, it is hard for me to imagine any serious investor that would not take advantage of its uses. There are so many online stock brokers available to the average investor, that it can be hard for you to choose one to go with. Online trading is by far the most popular type of trading nowadays. It’s easier than phoning in a trade and cheaper because you are not paying for the extra services of an actual person taking your call and entering your trade for you. Be careful not to fall victim to the flashy advertising traps set by some of these online companies which promise unreal low commission rates. Generally, there are conditions such as you need to execute a high number of trades within a short duration of time or a minimum of how much you need to buy on each trade or some other kind of restriction in order for you to qualify for that low commission rate. It may or may not be right for you and your style of trading.
Another good reason for utilizing a separate account (whether it is another bank account or non-bank stock broker account) for your stock trading is because it is nice to have your trading funds separate from your savings so you are not tempted to dip further into your savings to feed your trading. It’s like going to Las Vegas with a preset amount of cash that you are willing to gamble with to eliminate the possibility of losing everything you have.
When it comes to selecting a bank or non-bank stock broker to trade with, here is a list of things to consider:
- Low Commission Rates – how much does it cost to execute a trade order? You have to cover your commissions in order to make a profit with any trade. Make sure you understand all the fine print around commission rates for your stock trades with your selected stock broker. Often there are restrictions, limits and/or tiered levels when it comes to commission rates. Choose a stock broker that charges a cheap commission rate that matches the style of trading you do.
- Real-Time Quotes – Real time quotes allow you to peer into what is happening in the market at this moment so that you can make an accurately informed split-second decision (although, if you are following a solid investment plan, you should have already made the decision of when to take profits or bail prior to the stock price moving close enough). Most free quoting services have a 15 – 20 minute delay in the quote they provide, but with any good trading service you should be getting unlimited real-time quotes.
- Level2 Quotes – show exactly what the market is moving towards with bid/ask prices as well as the volume to expect, allowing you to make a much more informed and executable trade.
- Alerts and Notification Services – alerts and notifications can be emailed to you when any of your stocks has reached a new high/low price threshold, when your buy/sell order has gone through successfully or when news is released affecting your stock holdings. These are generally configurable to meet your needs and can be a valuable tool when you cannot always be monitoring the markets.
- Research Tools – tools such as general market analysis reports, recommendations, stock filters, etc. There are an abundance of research tools available to you, but you may not use want to use them all so ensure you have access to the ones you want. This is not as big of a deal since most research tools are available outside of your selected stock broker on the internet and generally I’ve found them to be better anyways.
- Ease of actually withdrawing your profits – all these establishments will make it very easy for you to deposit money into your accounts with them, but make sure it is just as easy to get your money back when you decide to. This is one of the reasons most people stick with a trading account with their banks (that and also to avoid the hassle of setting up accounts elsewhere).
- Ease of use of their trading interface - is it intuitive or complicated to navigate their interface and place/update/cancel a trade? The last thing you want to do is lose money due to entering a trade improperly or miss out on a good trading opportunity because you couldn’t figure out how to enter it in time.
- Perks – some stock brokers offer perks to their customers for various reasons such as frequent trading, high balance holders, new account signups, referrals, etc… It never hurts to get such things or at least know that they are available if you qualify.
To find an up to date list of current online stock brokers, the easiest and best thing to do is perform an internet search. From there, you can select the ones that look interesting and attempt to do an apples-to-apples comparison to figure out which one is best for you. Good luck!
