You actually don’t need much to get going as a trader: a computer, an internet connection, and a great broker account can pretty much get you started.
This list of necessities isn’t high in quantity, but the quality does matter. You need a good computer and a reliable internet connection that won’t cut out on you to trade effectively … and you absolutely need a high-quality broker.
Not sure where to get started with brokers? In this post, I’ll offer some important broker insight, including what they are, why they matter, and some of the most important things to consider before choosing one.
What Is a Broker?
What exactly is a broker? It’s a third party that facilitates trades. These days, most traders prefer to use online stock brokers for convenience.
Once upon a time, there were just a few online brokers. Times have changed. Now, you’ve got all sorts of choices, from brokers that are attached to big banks to 100% web-based options.
While choices are good, decision fatigue can be real — so let’s talk about why your broker matters and what you should be looking for in a broker.
Why Your Broker Matters
Your broker is the gateway between you and your funds being applied to trades…
You don’t want to put this responsibility in the wrong hands! Much like choosing the right bank for your money, you want to choose a responsible and reputable broker that you can depend on.
Ideally, your broker’s offerings should be aligned with your needs as a trader. They should offer easy to use tools that you understand, and you should easily be able to meet their requirements for holding an account.
Choosing a Broker
What should you be looking for in a broker? Here’s a quick list of things to consider when choosing a broker:
Your Trading Goals
The right broker for you depends on what your individual goals are as a trader.
For instance, do you want to get involved in short selling, or trading options? You’d better make sure that the broker in question offers these services, because not every broker does.
Be sure to consider what styles of trading you’d like to pursue, how frequently you’d like to be trading, and other trading related goals. If a broker isn’t able to help you in reaching them, then keep searching!
Account Minimums
Brokers can vary quite dramatically in terms of the amount necessary to open and maintain an account.
How dramatically? Well, they range from accounts with no minimum to upward of tens of thousands of dollars.
So before searching for a broker, have an idea of how much capital you’d like to start your account with, and how much you reasonably think you can maintain in the account. Try to find brokers that are within your range.
Of course, it’s important to remember that a low minimum doesn’t necessarily make a broker a better choice, because there could be other fees or penalties that could end up costing you in the long term.
Trading Commissions and Fees
Commissions and/or fees aren’t unusual with brokers. After all, they’re charged fees for transactions by the U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). So it makes sense for them to want to cover these fees, but the range of costs for you can vary.
FOR EXAMPLE: Many brokers charge a fee of $6.95 per transaction, either buying or selling. So every time you buy or sell — whether it’s one share or $5,000 — you’ll be charged this fee.
Other brokers, like Robinhood, are advertised as “no commission”… which means that you won’t be chaged a commission when you buy a stock. However, per their website, when you sell you will be charged the fee that they’re charged for sell orders.
Keep in mind that wording can sometimes be tricky to navigate with brokers, so always read the fine print.
Other Account-Related Fees
Commissions and per-trade fees aren’t the only types of fees you’ll need to contend with when considering brokers.
For example, an account might have an annual fee, or there may be a surcharge if your account dips below a specified amount. For some accounts, there could even be a hefty fee for closing the account.
Take the time to research these fees. While you may be able to deal with a few fees, if there are too many, or if you don’t think you can meet the requirements to avoid fees, you may want to select another broker.
Stock Analysis Tools
It’s important to research a stock before executing a trade to formulate a strategy. By looking at a stock’s chart and price action history, you can get a better idea of the strength of trends, notice price patterns, and determine entry and exit points for your trade.
Some brokers offer comprehensive stock analysis tools for free. Others offer them for an added charge, and yet others offer no stock analysis at all.
If you have another stock analysis program that you trust, this may not be an important consideration. However, if you’re looking to your broker to provide these tools, make sure that their analysis tools are equipped with your favorite indicators and that you can easily understand the software.
Customer Service
How easy is it to get a hold of a human being at your chosen brokerage?
If you have questions about a broker’s offerings, minimums, your account, or anything else, they should be easy to reach.
The best way to assess their customer service? Give them a call. It only takes a few minutes to do this undercover research, and the results can be very revealing.
Customer Reviews
Just like restaurants and service providers, users will leave reviews for online brokers. Poke around the internet and see what people are saying about the broker you’re considering.
Often, if someone posts either a complaint or praise, it can help inform you about the pros and cons of a particular broker. It can help alert you to potential red flags, or help confirm your instinct that it’s a good fit.
In Closing
Choosing the right broker can help you make the most of your trading time and money. Be sure to take the time to carefully consider your needs and the broker’s offerings to make sure they’re well aligned!
SwingTrades With Paul Scolardi
I’m Paul Scolardi, the lead teacher at SwingTrades — and a longtime swing trader myself.
In my trading career, I’ve focused on forecasting trends so that I can take advantage of them ahead of the mob. During my career, I’ve successfully forecast future trends by looking for and finding earnings winners, sector leaders, and hot IPOs.
Are you interested in giving swing trading a try? Join my SwingTrades program.
In SwingTrades, I help my students become self-sufficient traders. I do this by teaching them what I’ve learned over the years about identifying momentum before it happens. At this point, I’ve taught over 1,400 students from 50 different countries!
Remember: Trading requires lots of hard work and dedication. No matter how much you study and prepare, there are always factors in the market that you can’t anticipate. Trades are always executed at your own risk.
Ready to take the first step? Work toward becoming an informed and self-sufficient trader with SwingTrades!
What are you looking for in a stockbroker? Leave a comment and let me know what’s most important to you in a potential broker!