Having some knowledge on investments, when you are ready to execute your trade you need to choose a stock broker. Choosing a stock broker is not easy as it seems. It is actually a crucial one. While choosing a stock broker you need to consider a few things to choose the best stock broker that suits your trade.
Here are some points to consider…..
#1. Investment :
First you need to know where you are investing. If you are investing in local stock market, you will have plenty of stock brokers available. On the other hand, if you are investing in a foreign market, there may not be much of stock brokers available. Knowing where your invest is very important because that is what decides if getting a stock broker is easy for your trade which in turn determines the commission paid to the stock broker.
#2. What do you need?
Different stock brokers provide different types of services. Some give advice on your trade and others don’t. Some provide news feed and guides. It depends on the firm. You need to first recognize your requirement. Analyze what you have and what you need for your trade.
If you have a wide range of investments you can go for “Discretionary” services. Discretionary services are those in which the stock broker manages the trade on behalf of the investor.
If you are a beginner in shares and you need help it is better to go for “advisory” services. They might guide with what is what and make things easier for you.
Other stock brokers simply carry out your instructions on trade on phone call or online. They are called execution only stock brokers since they just execute whatever you instruct them to do.
Never decide brokers solely based on commission charged. This is often considered by beginners. But it is actually the wrong way to do it. There are other things that matter too.
Choose brokers not by the cost but by their interest in your trade. They need to understand your requirements and your current status and plan accordingly. He should be able to identify risks in your trade. Remember quality is more important than cost. He has to make this trade a beneficial one.
However costs matter too. You cannot ignore them entirely. Negotiate and look for the commission that is reasonable.
#4. Are the things easy between you and your stock broker?
The relationship between a stock broker and an investor is very important and has to be maintained in an etiquette way. This is for the executing the trade successfully. Success in the trade is beneficial to both the investor and the stock broker. Hence it is important that you choose a stock broker who understands you and has your goal in mind in every steps of executing the trade.
Another thing is that he should also be someone who is trustworthy. You need to be careful in choosing a trustworthy firm.
You should also know your place in relation to them. Stock brokers are service providers. And you are a client. This should never be forgotten. Some stock brokers are so money minded that they may not have your goals as their priority. These have to be considered as well and then chosen.
#5. Test your stock broker’s skills:
You should also test your stock broker’s skills. Ask him all that you need to. See if the answers satisfy you. Most importantly see if whatever he says has anything to do in executing your trade. Think deeply and analyze. If he really is a good broker he would give suggestions and stuff that helps the growth of your trade. He should look for your needs and suggest tips accordingly.
Basically, a stock broker must be able to explain the fundamentals, market capitation, future prospects, valuation, risks, etc.., A brokers knowledge about the product is the most important one. It decides the success of your trade. If you feel that they don’t know what they are doing just go ahead and drop them. They should know what they are doing and have explanation for every action that they do.
#6. Is the service flexible and comfortable?
There has to be some flexibility in some services. Look for stock brokers who provide such services. For example, tax advantaged accounts. Those firms which provide tax accounted accounts are more preferred. Reduction in tax can make a big difference in a trade.
Other services like with multi currency accounts are there wherein you will have to pay for each and every time you convert the currency. Look for stock brokers who don’t charge you extra.
Sometimes it is better to use a foreign exchange specialist to do conversion. This does not have to deal with stock brokers for extra charges.
#7. Safety first:
Go for reputed firms that provide a safe trade. Know about the investor protection rules and compensation schemes. See the ways that protect you in a trade if the worst happens. The firms must be well regulated ones. They have to be known and preferred by many. Don’t go for firms that are hardly known by any.
If you choose a broker he should be covered by SEBI. If the firms fail, your assets in brokerage accounts can be protected. In case of online brokers ask for back up plans if there is any technical problem.
Never choose a firm if you are not sure if they are trustworthy. Don’t choose them with a suspicion.
Thus choosing the right stock broker is very important for a successful trade. Whatever decision you make be confident about it and make sure you are comfortable with it.