5 Important Tips for picking your Online Broker
One of the most important investment decisions you’ll make has nothing to do with the stocks, bonds, ETFs, options, or mutual funds you choose. Instead, it’s actually picking your online trading broker, and this decision can cost you significant money over the long term and if you make the correct decision can save you a significant amount of money over the long term. In future articles we will introduce you to the big names in online trading and help you make an informed decision on one.
For now, here are our top 5 recommendations on how you decide which one is best for you.
1. Cheaper is not always better! A great deal of beginner investors actually begin investing through the brokerage arms of their banks. These are often called “full-service” brokerages and they can be more costly than the online discount brokers. Actually, full service brokers are a good idea for beginner investors who aren’t confident enough about the markets; but as you learn from the 360 Investing Network and become a more savvy investor, you will be able to start using the discount brokers and keeping more of the “fees” for yourself!
2. What products are being offered? Many people lose sight of the fact that there are other investment tools outside of stocks. The ability to trade commodities (gold, silver, etc), derivatives (options, futures), and other investment vehicles (ETFs, Mutual Funds, etc), can give you a very strong diversification tool and help you hedge some risky equity investments. Both of which can make you a successful investor; so make sure to read all the products and services being offered because once you have taken all the 360 Investing tutorials, you may find yourself comfortable with other investment vehicles.
3. Ease of Banking and terms of banking. The best online trading brokers today give you very easy ability to transfer cash in and out of your trading account and your bank accounts. Furthermore, keep an eye out for the terms of your initial funding requirements. Some brokers require a minimum of $10,000 to open a trading account, which is more than the average
beginner investor wants to spend! Other key banking issues:
• Look out for an ability to earn a return on the cash in your investment account- You are likely to always have some cash in your brokerage account. Some brokerages will offer prime+1 or 2% interest on your cash, so find out if they offer it!
• Keep an eye on the brokerages interest rate for borrowing as well – many investors utilize what’s called “Margin” Accounts for their investments. We will discuss Margin accounts in future sessions, but know that these accounts are essentially lines of credit and that you are paying interest usually on a variable basis, tied to the prime rate. You need to keep an eye on the brokerages policies, in order to manage your true cost of investing!
4. Customer Service is KEY – Why is customer service important? If the online brokerage goes down, you want to know you will be able to get a hold of a customer service representative to execute a trade in a timely manner. This could be the difference in costing or making you thousands of dollars! Also, you want different customer service options, such as phone, online live chat, and email ticket support, so you have a variety of ways to get through to the brokerage with your questions.
5. Price – When it comes to online brokers, price is usually indicative of the quality of service you will receive. Do not open an account with a broker with the lowest commission cost only! Not only could this low commission be temporary or an ‘introductory’ offer, but again, this could mean you get a bear bones online broker with minimal trading tools and minimal customer service. When you inquire about price, don’t only inquire as to the price of placing an order online, but ask these other important questions to their customer service reps:
• Is there a minimum number of shares I am required to trade? Are there thresholds for commission? (i.e. will it cost me more to trade 10,000 shares vs. 1,000 shares)
• Is there different costs to trade depending on the exchange I am trading on? (For example, Dow Jones vs. TSX)
• Is there an introductory offer? (i.e. free trades available for signing up?)
• Is there different costs to placing an order for stocks (equities), ETFs, Bonds, Mutual Funds, Gold, or Options? (You want to compare the costs for all of these investment vehicles between brokers, in order to make the most informed decision)
In conclusion, an online broker will help you get in the investing game from anywhere on the planet! If you use some of our important tips above, you’ll be on the right track for finding success in the markets!
The 360 Investing Guys!