The most common questions from novice investors relate to choosing a financial broker to invest:
- What do you think about this broker?
- Should I open a trading account with this broker?
After receiving the same questions often, we decided that it would be beneficial to deal with this topic and provide a simple overview of choosing a suitable broker.
What is a brokerage firm?
A financial broker is a legal person who has a mediating role in a stock exchange transaction. To make investments or transactions in the stock exchange, a person must first enter into a contract with a brokerage firm that provides him with a platform through which buy and sell orders can be given to the exchange.
Many novice investors get the wrong impression that once they enter into a contract with a brokerage firm, they will work with will tell them what they are investing in to make a profit.
Factors to consider when choosing a broker
Regulation and licensing
The most crucial aspect for any novice investor to consider is brokerage firm regulation. Any financial intermediary must obtain a license from the Financial Supervisory Authority to operate legally in the market. For the safety of your investments, it is important to choose a broker authorized by the financial authorities.
You can check whether the broker you want to sign a contract with is approved through the company’s official website.
Carefully check the broker’s offer of financial instruments and whether they are right for you. Do not open a real investment account if you do not fully understand how these tools work.
Also, depending on your risk profile and the portfolio you want to create, check if the broker’s tools are tailored to your needs.
If you are a conservative investor, you should find a firm with tools that give you an offer of government or corporate securities.
The broker’s offer should contain fixed income instruments, stocks, ETFs, or precious metals for a moderate risk investor.
An investor with a high-risk appetite should find stocks, CFDs, cryptocurrencies, and commodities with a broker.
Trading fees are another essential aspect to consider. Brokerage firms charge a commission every time a client trades in one of the financial instruments that the broker has.
In addition to the traditional trading fees, any broker charges other fees:
- Profit collection commission.
- Inactivity Fee
- Commission for accessing the platform.
- Commission for withdrawing funds.
Before signing a contract with a brokerage firm, you are critical that you are aware of all the commissions the broker charges to no surprises in the future.
The brokerage firm provides investors with a trading platform through which investors can trade. The platform must be as fast and easy to use as possible.
At the same time, investors need to find all the information they need to make an investment decision in the platform. However, in the case of stocks, no financial broker provides information on the platform regarding the companies’ financial results or other information of a fundamental nature that will help the investors understand the company’s business.