When you decide to play on the stock market, choosing a stockbroker is one of the most important decisions you will make. However, it can be more complicated than it sounds.
When you choose the right stockbroker, they will have access to information on hundreds of publicly listed companies and be able to offer advice on making the right investments, so you can make the kind of money you want. Choosing the wrong stockbroker can result in loss of money through unwise investments and high broker fees.
Before choosing a broker, you need to consider
- How much you know about the market?
- What type of service you require?
- How much you are willing to pay in broker fees?
Where do you want to invest?
Most countries have a large variety of brokers to choose from if you just want to invest in the local market. But if you are looking at investing in foreign markets, then your options may be limited. You can look at the International Stock Broker Guide to see which firms are available to you and in which countries they trade.
It is common to have accounts with more than one stockbroker - for example one account for local trading and one account for foreign trading - so that is an option available to you as well. If you are going to open an account for foreign trading, think about how convenient this is to you.
If you are going to open an account for foreign trading it is a good idea to get the most comprehensive account available. Then you don’t have to open a new account every time you want to buy and sell in a different country, and you won’t be overwhelmed with the number of accounts you have and not have the time to monitor them all.
What type of broker do you want?
Now we will discuss the general attributes of full-service and discount brokers and how to choose the broker that is right for your needs.
Full service
A full-service broker will offer the highest level of service and is the most expensive option. They are usually the best choice of broker for those people who are less experienced with investing in the stock market.
Full-service stock brokers can provide you with detailed research reports, regular publications and updates on many of the larger publicly listed companies, and help you to build and monitor your new portfolio.
If you become a client of a full-service stockbroker, make sure they will contact you if something significant has happened in the market, like if a special opportunity to invest has arisen.
Some Full Service Brokers in India :
Discount
As the name suggests, discount brokers offer a cheaper service than a full-service broker. This may be a good choice for someone who has some experience in trading already, and just needs someone to perform the manual work on their behalf.
Their services will differ between brokers but generally there will be less advice given, and less extensive research and advice provided to you. Some discount brokers will only execute the market transactions on your behalf for the fee you pay to them.
If you choose a discount broker, make sure you have all the details of their service before you hiring, so you can avoid any misunderstandings.
Some Discount Brokers in India :
Making a shortlist
After you have done some research and decided what type of broker you want, make a shortlist of the stockbroking firms you think will fulfil your needs. You will need to call them on the telephone to ask about their services, and they will ask you some questions about what type of investments you want to make.
During this discussion, you should explain your financial situation and what you hope to achieve through using their services. Ask if they have experience dealing with smaller investors who are starting out, just like you. Don’t be afraid to ask any questions, even if it is just to ease your mind.
Some stockbroking firms will not deal with smaller investors like you. But they may be able to recommend good brokers who can help you to make investments. There are a lot of stockbroking firms who like to deal with clients who are just starting out because in the future, they may become bigger and bigger as they earn more and more money.
If for any reason you feel uncomfortable, you do not have to choose that broker. The choice is entirely yours. But once you have found a broker with whom you feel comfortable, you should make an appointment to see them.
How do you interview a broker?
Stockbrokers have to know their clients before they are able to make any recommendations to you. Expect the broker to ask you all about the investments you are interested in and your finances and financial goals.
Before you get to the interview, make it clear in your mind what you want and how you want to achieve it by investing. Be as honest as you are able with the details about your situation. The broker will want to know how often you want to trade and how much money you are willing to invest - this is how they will be able to determine their profit from you in fees and commissions, which is their livelihood. If you are dishonest you cannot build a trusting relationship - the partnership will break down and there will be no profits for anybody.
If you do not feel satisfied with the broker at the interview, there is nothing to stop you interviewing other brokers until you find one you are comfortable with.
A note on stockbroker fees
When you hire a stockbroker, make sure you know which fees you will have to pay and how much they are. Are there currency conversion fees for you foreign trading? How much will you have to pay in commissions? How much will you have to pay in management fees? This is important to know, so you won’t be using all your profits back to your broker.
