If you are interested in trading stocks, the first and foremost thing to do is to choose the best online stock trading broker. This is because working with the right broker is essential to succeed as a stock trader, especially if you are planning to buy and sell stocks online. Charles Schwab started online stock trading in 1975 and today the market is flooded with hundreds of online brokerage companies.
How To Choose The Best Broker For Stock Trading
Of course, you can learn the nitty-gritty of stock trading all by yourself, but the problem is that it takes a great deal of time and effort for you to acquire the required skills. The best online brokers for stock trading can help you in speeding up the learning process and making well-informed decisions. In this article, some of the key features you should look for in best online brokers for stock trading are discussed in detail so that you can identify the right broker for your specific needs.
Different Types of Brokers
Stock brokers are of two types: full service stock brokers and discount stock brokers.
Full Service Brokers
Full service brokers offer investment advice and retirement planning, among other financial services. If your goal is to invest for a longer period of time, you must choose this type of broker.
Discount brokers charge significantly less fees as well as commissions. However, they do not provide any kind of investment advice. If your aim is to involve in day trading and swing trading, then a discount broker is definitely your best choice.
Online brokers are referred to as discount brokers. They are of two types: web-based brokers and direct access brokers. In the case of a web-based broker, you will place your orders for buying and selling stocks by accessing the website of the broker you are going to work with on your browser and logging into your trading account. You are not required to download any software for the purpose.
As such, identifying the right broker for you to work with boils down to choosing one that best suits your needs from the three or four of the best online brokers for stock trading that you have shortlisted after investigating the following aspects about each of them.
Real Commission Rates
An online broker charges commissions in the range of $0 to $40 per trade. You must make sure that the broker’s advertised rates are applicable to different trading instruments as well. Brokerage can vary from one instrument to another and rates are usually higher for live broker service. Brokerage or commission indicates the cost of doing business with a broker. Therefore, you should always look for a broker that offers the most competitive rates.
There can be some hidden fees in the case of many online brokers. They can significantly increase the cost of each trade. Some of the charges you need to be aware of are fees for depositing and withdrawing funds into and from your account, administration charges, insurance charges and late payment penalties. This means that you will have to go through the company’s fine print and e-mail to have a clear understanding of the fees involved.
As you become more experienced in trading, you may want to carry out trades in different markets. It is always better to do the same with the broker you are working with. This is to say that you should plan ahead by choosing a broker that is capable of meeting the needs that may arise in the future.
Interest On Un-invested Money
Some online brokers do pay interest at the rate of 3% to 4% on the un-invested money available in your account.
If an online broker asks for a high initial deposit to open an account and start trading, it should raise a red flag in your mind. You should never entrust a company you don’t too much about with a great deal of money. An online brokerage would never ask for large sums of initial deposit like a full service firm.
In online stock trading, speed and reliability are very important aspects. You could end up losing a lot of money if the trading platform and service offered by the broker are not reliable and the system does not execute orders quickly. Therefore, you must ensure that the broker you are planning to work with offers an alternative way for placing trades, if required.
Evaluate all of the additional features offered by brokerages and find out whether they will be of any benefit based on your trading style. Some brokers may even offer certain automated features. However, it does not make any sense if you are not going to use it at all.
One of the most important automated features you should look for is the stop loss feature. This enables you to set your exit point. It gets triggered automatically. Contingent Order is another important feature you should look out for. They allow you to set conditions to be met prior to placing an order automatically. For example, if the price of a stock you are interested in breaks out from the specified $12, an automatic trigger places buy orders. Typically, automated extras are more applicable in the case of online brokers.
When you evaluate some of the best online brokers for stock trading, you will notice that more than one broker would fit all of your criteria. So, how can you choose the right stock broker for you?
The best option is to check with local investment clubs in your area and/or online forums and seek recommendations. It is also a good idea to do some search through our website as we provide reviews about brokers who specialize in offering stock trading platforms as well.
You can also consult other traders you know as well as respect. Finally, it is always better to work with a stock broker who has been in the field for a while.
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