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Choosing online stock brokers – 10 tips

by Jonathan Adams

Picking online stock brokers is one of the crucial decisions you’ll make when investing in stocks, bonds or mutual funds. As there are dozens of companies offering brokerage services on the internet, deciding the best for your requirements becomes a challenging task.

Following are 10 factors you’ll want to consider before picking up online stock brokers:

Discount is not always a good deal. Consider full-service online stock brokers to begin with. They are the best choice for novice investors who may be looking to gain knowledge of the market. As you graduate into a more sophisticated investor, you can try investing yourself.

Availability is the key. Try hitting the company’s website at various times, more so during peak trading hours, and notice the time it takes to load. Also, check some of the links to make sure there are no technical difficulties.
Alternative trading provides flexibility. Check to see that apart from the net, what other options the firm offers for placing trades. Some of the alternative methods may include touch-tone telephone trades, fax ordering, or talking to a broker over the phone.

Background of the broker. Know what others have to say about the brokerage. Find out as much as possible about the broker the same way you would do before buying a stock.

Price is not all. As with anything you buy, the price may be indicative of the quality. Don’t open an account with a broker just because its commission cost is the lowest. There may be fine print in the ad specifying which services the advertised rate will actually be applicable to. In most cases, fees will be higher for limit orders, options and those trades over the phone with your broker. It is possible that the advertised commission rate may not apply to the type of trade you want to execute.

The minimum deposits may not be minimal. See the initial deposit the firm requires for opening an account. Be aware of the high minimum balances because the amount may be as much as $10,000 (£6813.15) for some companies.

Selection of product is vital. Probably, most people primarily think of buying stocks when choosing a brokerage.

Remember that not every company necessarily offers all investment alternatives such as CDs, municipal bonds, futures, options and even gold/silver certificates. Many brokerages may also offer checking accounts and credit cards as part of their financial services.

Customer service is important. There can be nothing frustrating than sitting on hold for 30 minutes waiting to get help. Before opening an account, call the company’s help desk with a fake question to see how long it takes to answer the query.

Return on cash is money in the bank. It is likely that you always have some cash in your brokerage account. Some brokerages will offer 3-5% interest on this money, while others won’t offer anything. Contact the brokerage to find out what it offers. Asking this question for testing customer care response time and efficiency is a good idea.
Extras welcome! Be on the lookout for extra goodies offered by brokerages. Don’t base your decision entirely on the $100 (£68.13) in free trades, but keeping this in mind is an advantage.

This article is for information purposes only.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.

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