Five Considerations In Picking An Online Brokerage Firm

Online stock brokers have set the investing world up for consumption by a much broader public. However, profitable investment isn’t as easy as a simple keystroke. It still takes time and due diligence, particularly in finding a brokerage service that aligns with your needs and goals. Selecting the right broker is often the difference between the excitement of developing a new income and the devastation of losing an investment fund.

What Is An Online Broker?

Traditional brokerage services operate face-to-face from a physical location that the client enters to do business. An online broker may or may not be a unit of such traditional brokerage entities, but they all offer brokerage services to clients online, meaning that the client can conduct all their trading needs over the internet vs having to go to a physical location. Online brokerage firms store your money and stocks within an online account and then your broker will execute trades on that account.

Firms offer various levels of assistance, services, fees, security and protection, and account types. The intricacies of what each type of firm offers in comparison with what a client needs and wants, or often what they don’t know to need and want, can often be overwhelming to sift through. While there aren’t any official standards to rate or assess a brokerage firm, here are five elements to be mindful of in your search for the right broker

Five Considerations Before Picking An Online Brokerage Firm

  1. What’s your purpose of investing?

Maybe you’re supplementing your income, trying to fund a particular event, wanting to build a retirement nest egg, or are looking for this to become your primary income source?

Say your goal is retirement, for example. You’ll need to know the answer to questions like – does the firm have retirement accounts, are they Roth or traditional, and whether or not you can rollover an existing 401K or IRA?

To determine the right firm, you must know your objectives; how much time, energy, effort, and learning will be involved to successfully attain your objectives; and if a particular firm offers services congruent with your objectives. Knowing this info will enable you to pick a firm that cultivates your needs, not hinders them.

  1. What amount are you planning to invest and what fees are you prepared to pay based on the type of account and trading you’ll be doing?

Most any online brokerage will require a minimum investment amount to open an account. Most will also require a minimum account balance be maintained after opening the account. The specific amounts vary by firm.

There are also multiple fee schedules to consider, especially as they relate to account activity.

Some firms have monthly or annual account fees based on your balance or usage of the account. Some have account inactivity or overactivity fees. There may also be platform and upgrade fees for new tools. Trading commissions can also depend on how much you have invested and/or how often you’ve traded. Are margin trading interest rates lower for larger amounts?

The specific questions and details you need to ask largely depends upon the amount you’re investing, how you plan to maintain your account, the frequency you plan to use your account, and the type of trading you’re looking at doing now and possibly in the future.

  1. How much guidance will you need?

What’s your level of expertise in trading? Lower cost firms provide a platform, but don’t typically offer extensive broker-assisted trades, research, or other legwork. It’s largely left up to you to know how to implement these actions. Moderately priced to high-end firms usually offer more extensive services from licensed brokers, such as market analysis and broker-assisted trading options.

  1. What level of services do you need or foresee wanting?

Trading sites not affiliated with major institutions usually exclusively offer the buy and sell of stocks. Larger firms linked with brick and mortar financial institutions may offer anything from debit cards and mortgage loans to investment in securities like bonds and futures.

  1. Consider using a brokerage rating site.

Sites like Smartmoney, for example, use consumer data to rate brokerages on their trading tools, customer service, offerings, success rates, fees, and so forth. Such information can help you make a well informed decision whether you’re shopping between several good options or need an efficient way to break down all your choices.