When you start out in the financial markets, you almost certainly need the service of a trading broker. That’s true especially if you plan to be a day trader or a short-term trader. Investors or long-term traders also need the services of a broker.
Types of Brokers
In general, there are two types of brokers. They are the regular and broker-resellers.
Regular brokers are those that deal directly with you as their client. Meanwhile, broker-resellers are more of intermediaries between you and a bigger broker.
Regular brokers follow higher standards when compared to broker-resellers. However, broker-resellers also follow certain standards that ensures they provide quality services to clients.
We can also distinguish between brokers. For the first one, we have full-service broker.
These brokers offer individual advice and recommendations to the clients. They do a huge chunk of the process for you. Of course, these services don’t come cheap.
On the other hand, we have the discount brokers. As the name suggests, discount brokers do not offer the same type of full services to clients.
Instead, they let you make your own decisions when it comes to trading. There are times, though, when they offer some advice for the trader for a fee.
Fees and Expenses
Before you hire any of those brokers, you have to consider too the fees and expenses. You don’t want to see your investing money shrinking because of fees and expenses you didn’t expect.
First, consider the minimums. Most brokers require minimum deposits to set up and fund an account. Online brokers require the cheapest rates, which can be anywhere between $500 and $1,000.
Second, check their margin accounts. Although you don’t need to open a margin account right of the crack, you still need to consider doing it in the future.
Margin accounts also usually require higher minimum balances, so you better check the broker’s rates. Compare their standard accounts to their margin accounts.
Another crucial detail to check about your broker is the investment or trading styles that it allows.
If you’re a trader, you don’t hold onto your positions for a long time. Your targets are quick gains that accumulate to be greater than the market average.
If you’re that kind of trader, you may want to choose a broker that charge low execution fees. Because you make more trades than the long-term trader, you don’t want to see execution charges eating away at your profit.
On the flipside, if you’re a buy-and-hold investor, you’re more of the passive type. You simply hold the asset for a long time until it sees great price appreciation.
Being in Between
The thing is that a huge number of traders will say that they fall somewhere between those two types. If you’re one of them, then it’s more important to check whether the broker sits well with your style.
If you can’t find the perfect broker for your style, then you have another option: robo-advisors. It’s worth checking whether automated trading can also do some help for you.