How to Choose Online Broker?

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There are multiple online discount stock brokerages, and you want to choose the best. But which one is the best? Is the best broker for you is the same one that is the best for everyone? I do not think so.

It largely depends on what you expect from the service provider, how you would like to utilities the provided opportunities, and definitely, how much you are willing to pay for the trade. Besides, different experts are giving you different ranks for the competing services, while the users’ ratings for the same providers are dissimilar as well.

For starter, you need to understand, what kind of trader you are, or what kind of trader you are going to be. Your self-perception as a trader might change overtime, with more experience and money resources available for the trading game. But start from self assessment that will have you to choose the features, which are essential for your daily investment activities.

There are multiple more or less complicated types of the traders’ classifications. We’ll choose a simple one developed by Gomez (http://www.gomez.com/). According to this classification, there are 4 general investors’ types:

  1. The "hyperactive trader": the investor who trades frequently, and therefore prefers low commissions and super fast-performing sites.
  2. The "life goal planner": the investor looking for mutual funds and a wealth of financial information and tools.
  3. The "serious investor": the independent investor who demands up-to-the minute research.
  4. The "one-stop shopper": the investor who wants convenience, a full selection of investment, credit card, bill payment, and checking account offerings.
After the brief self assessment, you need to review the 12 following criteria for the online brokerages to match your investing style and preferences:
  • Commissions: As you well know, cheap doesn’t generally go hand-in-hand with quality. Be honest about your experience as an investor. As a general guideline, the more advice and information you need, the more you may want to pay out to help ensure that you avoid poor investment decisions.
  • Other fees & rates: Read the fine print. Watch for account minimum balances, trade minimums, annual administrative costs, and compare margin rates and interest rates on fixed accounts.
  • Return on Cash: You are likely to always have some cash in your brokerage account. Some brokerages will offer 3-5% interest on this money, while others won’t offer you a thing.
  • Minimum Deposit: See how much of an initial deposit the firm requires for opening your account. Beware of high minimum balances: some companies require as much as $10,000 to start. This might be fine for some investors, but not others.
  • Availability: Try hitting the company’s website at different times throughout the day, especially during peak trading hours. Watch how fast their site loads and check some of the links to ensure there are no technical difficulties.
  • Customer service: It’s frustrating not to be able to speak to a live person, especially where money matters are concerned, so one of the first things to look for is a phone number that will connect you to live people, not taped recordings. Also make sure the Web site is easy to navigate and that you’re provided with satisfactory explanations for transactions and answers to any questions you may have.
  • Banking services: It may not be that important to you now, but make sure to select a brokerage that gives you room to grow. Sometime in the future you may want an account that offers money market sweeps, check writing and bill payment services, Visa cards, direct deposit, and ATM cards.
  • Information: It may come in the form of educational articles, market research, analyst reports, detailed financial data and, at the very least, real-time quotes. This information is all over the Internet, but you should determine for yourself how necessary you think it is to have it on the same site where you make your trades.
  • Investment selection: If you’re looking for a one-stop shop, be aware that many online brokerages don’t offer mutual funds. Worse yet, some charge commissions on no-load funds. Make sure the broker trades the full range of securities--some do not trade all the stocks, bonds, or options currently available on the market.
  • Local offices: Some online brokers have local branch offices some U.S. cities. Some traders and investors may want to sit down and talk to their local broker representatives. In this case, choosing an online broker with a branch office close to your home may be the deciding factor for you.
  • Extras: Be on the lookout for extra goodies offered by brokerages to people thinking of opening an account. Don’t base your decision entirely on the $100 in free trades, but do keep this in mind.
  • Research the broker - What are others saying about the brokerage? Just as you should do your research before buying a stock, you should find out as much as possible about your broker.
Additional Reading:
http://www.msmoney.com/mm/investing/articles/choose_broker.htm
http://www.investopedia.com/articles/00/112100.asp
http://www.tradingwinner.com/archive/2006/06/27/choosing-an-online-stock-broker/

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