A good broker can help you on the way to trading success.  Conversely, a bad broker makes it that much harder.  But how do you choose a broker?

Firstly, define the market or markets that you are going to trade in.  Will it be stocks and options?  Then a stockbroker will be able to help you.  If futures, you will need a broker who can handle that.  Currencies may require someone else again.  Generally the broker’s website tells you what markets they handle.

Check out the broker commissions (including any account maintenance fees or other charges).  If you want to be a trader, trading expenses will be a lot higher than for an investor, so you need to get the lowest possible charges.  If you want “full service” which generally means advice, you will pay a lot more than for an execution only service.  As a trader, generally you will want the broker to simply place your trades.

Check execution.  This is how the broker will handle your orders.  It is not much good paying a very low price, but getting your orders filled at very poor prices.  The only way to check this is to look at what other people say about the broker - Google them and check out what other people have to say, or ask your friends who are with them.

You will need to have a look at their trading platform.  Typically, a trader will want an online broker who offers a stable and fast trading platform.  You should be able to see what their system is like.

If you are trading forex (currencies), it is best to choose a broker who puts your orders into the market rather than trading against you.  In our experience, you will get extremely poor order execution if the market goes your way if they trade against you.  Think of the motive - if the broker trades against you, it is in their interest for you to lose so that they can keep your trading capital.

What is their online reporting like?  This is frequently overlooked, but you’ll need comprehensive reporting that you can give to your accountant to prepare taxes.  You don’t want to piece together hundreds of emails.  Ask for an example, if this is not shown online.

One other important factor is the financial security of your broker.  One of the largest brokers in the world, Refco, went under a few years ago, and many traders have had difficulty in getting their money back.  You should stick with brokers who are properly regulated and have plenty of capital.  You can check this with the regulatory authority of the country where they are based.  Also, be wary of brokers based in jurisdictions where there may be inadequate supervision such as some third world countries.

When you are searching for a broker, don’t go with the first one you find, carefully check out what they are offering you.  Remember to check the opinions of others by searching forums (although sometimes you may have to take what is said with a grain of salt). 

(No Ratings Yet)

 Loading ...

This entry was posted on Monday, March 17th, 2008 at 12:21 pm and is filed under Trading Basics. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.