No matter what kind of trading you’re getting into (unless you’re going to do it through one of the apps becoming popular nowadays), you’ll likely need to work with a broker at some point. With stocks, bonds, or even commodities, you’ll need to conduct trades through an individual broker or a site offering full brokering services. With a mutual fund, you’ll essentially be treating the fund manager as a broker with whom you’re entrusting a little bit more operational control. Whatever the case, you’ll need to evaluate the person who will be handling your transactions.
So how should you go about it? In part, this depends on what your financial situation is and what you’re hoping to get out of the investment. But in general, here are some key questions you may want to ask a prospective broker next time you have the opportunity to do so.
1. How Much Do You Charge In Commissions?
This is a question that was mentioned in a list by U.S. News & World Report of different things to ask when evaluating a broker. It was the second item on that list, but frankly it’s the most important to a lot of investors. Commission fees might range from as little as $2 or $2.50 to $10 per trade, and because this is basically extra money you’re pouring into your account to pay the broker with, you need to have a firm handle on what the number is. High commission fees are actually what cause some traders to gravitate toward the aforementioned apps that have sprung up offering commission-free trades, but you can find low-fee options with traditional brokers as well.
2. What Is The Minimum Balance?
This is another questions that was brought up by U.S. News & World Report, and it’s another one that’s essential for helping you to understand the scale of your financial commitment. Most traditional brokers or brokerage firms have set minimums for the amount you need to invest before you can start making trades. This is important not only when you’re starting out, but also as you go along managing your account. Sometimes, as the article pointed out, you can actually be forced to pay a fee for allowing your account to dip below the minimum balance at any point.
3. How Stable Is Your Company?
This may seem like a very straightforward question, but it’s nonetheless one you should ask (or at least research on your own). An article by FXCM on evaluating a broker explained some of the factors you should look for, such as the company’s background, how much cash the broker has available, and how much of a client base he or she has. Understanding these factors should give you a good idea of how stable, trustworthy, and active a broker is while allowing you to better prepare yourself to select the right broker for you.
4. Is The Company Regulated?
Another question from the FXCM article, this is slightly different than asking about stability or background. It takes some research, but understanding whether or not a broker is regulated, and if so where and how, can help you to manage risks differently. You may find as you look into it that you don’t trust one regulator as much as another, and you can determine where you want to allocate your funds accordingly.
5. What Services & Tools Are Offered?
Different brokers offer different services, ranging from customized interfaces and investment advising to the most basic levels of support. As Nasdaq pointed out in a similar post, the level of service and assistance available to you often coincides with the kind of fees you’re paying. So rather than simply asking about fees and making your decision based on finances alone, you’ll want to get a feel for what those fees are actually buying you. Sometimes a broker demanding steep fees will also be offering tools and services that can help you to be a more successful investor.
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