Picking a stock broker?
Choosing a broker is as big a
decision and choosing to invest in stock trading. Because the stock broker you
choose is your portal into the world of trading stock, forex and indicies, and
often your rescuer when things start going off track.
It is important to remember that
stock brokers study to do this job, it is a profession which requires
experience and knowledge to be successful, and the majority of brokers are
reliable, ethical and someone you trust your future comfort with. But you need
to find the right one for you and your position, as we know every person has a
different risk level in life. It is important to have a broker that understands
whats important to you, your needs and your fears.
WHAT IS IMPORTANT TO YOU
before you can consider the type
of broker you want to engage you need to consider what is important to you each
of the three types of stock brokers have different benefits. Before evaluating
specific brokers we recommend that you
- First consider what is import to
you,
- Second review the type of
brokers, and
- Three identify those type of
brokers that are available to you
What is important to you, we have
created a list of the key items to consider when identifying your type of stock
broker, whilst we have identified a group of items that must be consider you
can always add to this list:-
STOP - Before you do anything
else get yourself a trading note book, this
is important, this note book will only be used form trading related
matters. The types of things you will write in this note book will be,
summarized notes on the market,
signals you are watching for on
other markets or the market you trade,
stock tips you read about or are
told - write them all down and make a note why you do and don't trade
them you will want this information when you reflect on your trading
performance,
trades you make - including why you entered what your risks
are and exit signal,
trading goals - and objective
books your recommended to read
anything else about trading, directly
and indirectly related
- Cost
Do you have a maximum broker fee
you will pay per trade ($ per trade & % per trade)
Will you pay a monthly fee to
have access to a broker - Yes or NO -
- Research Information
Every broker will provide you
with access to research information the amount, quality and appropriateness of
the information will vary
- Do you want your broker to call
you when a good stock come into a Buy zone?
- Do you want your broker to
recommend IPO (initial public offering)?
- Do you want to review a variety
of research information across a mixture of segments and select your own stocks
to buy?
- How often do you want to review
research information (daily, weekly, monthly)?
Customer Service
- Do you want to talk to a person
or are you happy emailing or submitting your order online?
- Are you happy searching online
for answers or do you want to be able to talk to someone for a quick
explanation?
How much am I willing to invest
with a broker?
This is important as the amount
you are happy to transfer into that brokers trading account may limit you to
the type of broker.
- How much money will you
invest into the brokers trading account?
- How much money will you invest
in each trade?
- Are you willing to use a margin
load?
Personality
If you want to talk to your
broker regularly think about:-
- What type of people do you
enjoy talking to about investing and trading?
- What skills or background you
want your broker to have?
Remember your trusting this
person with your money and your future happiness, you need to be
comfortable with them.
Now that you have answered all
these answers in your trading note book you can now start to consider the types
of brokers available int he market.
TYPE OF STOCK BROKERS
When it comes to selecting a broker the criteria of each type of broker must be considered against your needs.
Full-service stock broker
Full-service
brokers offer the highest level of service and are usually the best choice for
less experienced investors, or an investor with a large investment fund, which
typically creates difficulties in keeping track of all your stocks. They
usually create and share detailed research reports on many of the larger
companies as well as regular publications and updates.
With a
full service stock broker you can expect update the day something changes with
a stock taking it from a buy to a sell or a sell to a buy, this can be in
written or personal phone calls. You can also expect weekly (or two weekly)
market and stock review, and in addition to this you will receive long term
summaries and projections of where to be invested and what to be moving away
from.
Top-quality
broker research is generally only available to clients and includes industries
and market research, as well as recommendations on your portfolio construction
for your risk level and position.
Obviously
this work by the broker comes at a cost and you will pay a premium, but this
research regularly pays for itself not only with what you make, but also what
you haven't lost. These type of broker typically only work with large size
funds, but there is always a small full service brokerage firm looking to grow
with medium sized clients.
Discount
stock broker
Discount
stock broker is exactly that, discount, so it comes with a lower level of
personal attention and care, the research information at your disposal will
also be lower.
As a
result to obtain the same result as the full service you need to commit more of
your own effort and knowledge. Typically the news letters and market updates
provided are much more general and will require you to do additional research
to determine if they the stock fits into your risk profile.
Be
mindful to review update schedule of stock recommendation, and before to
contact your broker if you believe the position is changing or changed, while
you are paying for a basic service, be sure to use it where you can.
Internet
stock broker or self serve stock broker
Internet
stock broker or better describer self serve stock brokers are exactly that,
they will provide you with online login details to your trading account so that
you can manually type in the amount of stock to buy or sell and the price you
will sell or buy at.
With your online login will also
be access to their market research, while this information is general a large
self serve broker can often create excellent market data and recommendation.
But much like the discount stock broker you are on your owner even more alone
in determining what is within your risk level and you need to be sure
to monitor the position of the stock is in when you buy, so that you can
identify the change early and respond.
The timeliness of self serve
stock brokers research information can vary greatly some update stock position
and recommendation daily, while others are weekly or monthly, be sure to know
their updating schedule before you start using them for recommendation.
PAIRING YOU WITH YOUR TYPE OF BROKER
Now we
have an understanding of whats important to you and what types of brokers are
available you now need to find the best match for you. Be careful in making
this decision, you need to make a decision for the long term.
Selecting an online internet
broker or discount service broker
Due
to the self serve nature of both internet broker and discount service broker
the review and selection processes are simple and very systematized.
Firstly
you need to clarify the items on importance to you, research information
supply, access to issuing trades, availability of funds and withdrawal process.
Then
you need to contact your research online and with your friends and family and
find out who they use, what they like about it and what they don't like to
create yourself a shortlist of brokers.
Once you have your shortlist you
need to start working thought your criteria to determine to
best meets your criteria.
Once you have determined who best
fits you, its time to start the process of opening the account, this
can typically be conduct online which will come with access to a
variety of research information immediately and the ability to start trading in
a couple of days.
Selecting
full-service stock broker
Shortlist
stockbrokers
If this is your first broker it
is probably appropriate to choose a general broker and
not necessary someone who specializes in selected
industries. When your portfolio grows or you determine that there is an
industry with potential you can then consider engaging a a second
broker to manage part of your portfolio.
When selecting your broker you
will need to speak to more than one broker to find one who is right for you. If
you are after research, start with the major firms, build a list in your
trading note book. Once you have done some online general online research start
talking to your friends and relative. Find out who they use and what they
really think of them and what type of success they have had.
When your obtaining feedback from
friends and family, be sure to ask some question about the
customer service, but also be sure to ask about their trading needs. While
they are a good broker for your brother or sister, they don't always make for a
good broker for you.
Now that you have created a
shortlist of brokers from a variety of sources, start screening.
Screening
the prospects
Contact
the broker firms you are interested in and book a phone meeting, and talk
through your needs as a trader and what you value in your broker. They will
probably ask a few questions about the types of investments you want to make
and tell you something about their service. This is important to be honest as
the broker want a good relationship as much as you do.
Explain
your financial position and the types of investments you wish to make, and
don't be afraid to ask if they deal with clients like you. If you are part of a
similar group they will be able to use their search hours to benefit more
clients at once. This is a smart business move for the broker and a smart
business move for you.
Generally,
broking firms segment their client bases and some prefer not to deal with
smaller clients, or may offer them a lesser service, this is fine but
understand where you will fit.
If you
are comfortable with the answers, make an appointment to see an adviser in
person, it is important to do a phone meeting first. If they don't seem like
the right fit they probably aren't so move on. Don't be afraid to cross someone
off your list.
Interviewing the broker
Legally a
client must know and understand you before they can recommend anything for you
to buy or sell. So prepare to be investigated and interrogated and ask about
the investments you want to make, your current financial position and your
goals, they will probably also ask some life position questions, so be prepared
and be honest.
It is
important to be clear in your mind, before the interview, what you want to
achieve from investing. The broker will also be forming a picture of what type
of client you are, how often you are likely to trade and what amounts of money
will be involved.
This is
why you have a trading noted book so you don't be court up in the moment.
If you are looking to make small transactions, say so. If you are a long-term
investor rather than a trader, make that clear. There is no point telling a
broker you are one thing when you are another.
Golden
rule of the interview, make your decision 3-5 days after the interview. Don't
get swept up in the moment.
Getting
the Service you agreed to
Now that you have selected a
broker to who have an aligned set of expectation it your responsibility to work
on making sure the broker works to those expectation and it is also your
responsibility to read and review all the information you broker gives you.
After all, you both agreed to a set of expectations and these go both
ways.
If your
broker has undertaken to contact you regularly with fresh share recommendations
and early warnings of trouble and that is not happening, pick up the phone and
find out why.
We recommend that you first
review the expectation you set in your meeting, are you investing as much as
you advised, are you making the types of decisions you indicated you would? If
your investment plan and needs have changed, meet with your broker be honest
and check that you are still the right match for each other.
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