10 Things To consider Before Selecting An Online Broker
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. There are dozens of companies offering brokerage services on the internet. How do you decide which one is best for you?
Here are 10 critical factors you'll want to consider:
1. Discount is not always the answer - Consider starting out with a full-service broker. 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.
2. Availability - Try hitting the company's website at different times throughout the day, especially during peak trading hours. Watch how fast their site loads and check some of the links to ensure there are no technical difficulties.
3. Alternatives - Although we all love the net, we can't always be at our computers. Check to see what other options the firm offers for placing trades. Other alternatives may include touch-tone telephone trades, faxing ordering, or doing it the low-tech way - talking to a broker over the phone. Word to the wise: make sure you take note of the prices for these alternatives; they will often be more expensive than an online trade.
4. Research the broker - 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 your broker. Gomez.com is a great place to find unbiased evaluations.
5. Price - Remember the saying you get what you pay for. As with anything you buy, the price may be indicative of the quality. Don't open an account with a broker simply because they offer 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.
6. Minimum Deposit - See how much of an initial deposit the firm requires for opening your account. Beware of high minimum balances: some companies require as much as $10,000 to start. This might be fine for some investors, but not others.
7. Product Selection - When choosing a brokerage, most people are probably thinking primarily about buying stocks. Remember there are also many investment alternatives that aren't necessarily offered by every company. This includes CDs, municipal bonds, futures, options and even gold/silver certificates. Many brokerages also offer other financial services, such as checking accounts and credit cards.
8. Customer Service - There is nothing more exasperating than sitting on hold for 20 minutes waiting to get help. Before you open an account, call the company's help desk with a fake question to test how long it takes to get a response.
9. Return on Cash - You are likely to always have some cash in your brokerage account. Some brokerages will offer 3-5% interest on this money, while others won't offer you a thing. Phone or email the brokerage to find out what they offer. In fact, this is a good question to ask while you're testing their customer service!
10. Extras - Be on the lookout for extra goodies offered by brokerages to people thinking of opening an account. Don't base your decision entirely on the $100 in free trades, but do keep this in mind.
With a click of the mouse, from just about anywhere in the world, you can buy and sell stocks using an online broker. The right tools for the trade are key to every successful venture. Finding success in the market begins with choosing the right broker.
by Investopedia Staff
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