Critical Factors to Consider in Choosing an Online Broker (Part 1)

Critical Factors to Consider in Choosing an Online Broker (Part 1)

One of the most important investment decisions you’ll make has nothing to do with stocks, bonds or mutual funds. This crucial decision is picking a broker.

Picking the right online brokerage comes down to your priorities. Some investors are willing to pay higher trade commissions for a state-of-the-art platform; others count costs above all else. Settling on the best option for you means weighing the following factors, which vary from broker to broker.

There are dozens of companies offering brokerage services on the internet, and many of them are just as good as or better than traditional, brick-and-mortar businesses, but how to decide which one is best for you? Here are the critical factors you should consider.

  1. Discount is not always a good deal

Consider starting out with a full-service broker as they are often best for novice investors who may still need to build confidence and knowledge of the markets. As you become a more sophisticated investor, you can graduate into investing more of your money yourself.

  1. Availability is key

Try to hit a company’s website at different times throughout the day, especially during peak trading hours. Observe how fast their site loads and check some of the links to make sure there are no technical difficulties.

  1. Alternative trading provides flexibility

Although we all love the internet, we can’t always stay at our computers. Check to see what other options the firm offers for placing trades. Other alternatives may include touch-tone telephone trades, fax orders, or doing it the low-tech way such as talking to a broker over the phone. Make sure you take note of the prices for these alternatives as they will often differ from an online trade.

  1. The broker’s background

What are others saying about the brokerage? Just as you should do your research before buying a stock, you should find out as much as possible about the broker you will choose.

  1. Price isn’t everything

As with anything you buy, the price may be indicative of the quality. Don’t open an account with a broker simply because it offers the lowest commission cost. Advertised rates for companies vary between zero and $40 per trade, with the average around $20. There may be fine print in the ad specifying which services the advertised rate will actually entitle you to. In most cases, there will be higher fees for limit orders, options and those trades over the phone with your broker. You might find that the advertised commission rate may not apply to the type of trade you want to execute.

You can continue reading this article in Part 2.

See also: What to Consider When Choosing an Online Broker

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