Evaluate Online Stock Brokers With These 7 Crucial Criteria

Posted by admin on October 4, 2011 under Stock Market News | Be the First to Comment

The past four years have been brutal for stock market how to stock market investors and have given pause to the expectation that online stock trading is a good way to make money. Rank and file investors have come to the conclusion that brokers offer no panacea for making winning trades.

But investing without guidance can be a very big mistake (to say the least), and if you are new to the market it would be foolish in the extreme. As such it is best to make a wise choice of a broker — one that can provide you with information, advice and support.

A novice investor stock broker can make the mistake of choosing an online broker solely on the basis of cost. That consideration can propel you in the direction of discount brokers that charge low fees, or even offer free trades, but can backfire with a broker that at best offers little, if any, experience in the market, and at worst might actually scam you.

In choosing an online stock broker online trading you need to consider seven things:

1) Fees

All brokers charge fees to buy and sell stocks, which means you’ll be charged twice for the same stock. Many new traders look only at the cost of the transaction fees and fail to realize that there may be hidden “nuisance” fees that are not immediately apparent. Some of these may be custodial fees, inactivity fees (for not trading over a period of time), transfer fees to or from another broker, and fees for closing the account. Remember, once you have invested with the broker, you’ll become subject to all of these “hidden” costs. Be sure you know what they are, and include them in your assessment when shopping for brokers. Make sure you can afford all the fees that will be charged to you, and that there are no “surprises”.

2) Initial Deposit

Aside from the commission, you will also be charged with a minimum initial deposit. This can range from $500 to around $10,000. But if the balance in your account is less than the minimum, your broker may charge a monthly or quarterly fee that could range from around $10 to $20 or higher.

3) Web Site and Amenities

Evaluate the web site of each of the brokers you are considering. Be sure it’s easy to use. You are going to spend a lot of time on this site, and you want to make sure it doesn’t frustrate you as you navigate around it, evaluating market activity.

Many brokers allow you to pay bills online and take transactions with a debit card. At tax time you should be able to easily obtain a Schedule D. Statements of your investing activity should be provided free.

4) Tools and Features

Every online broker has a set of tools and features that can be integrated into your account. Some you may want to have included are:

-Tracking and monitoring
-Portfolios
-Asset Allocation
-Financial planners
-Stock evaluation
-Research reports
-News Releases
-Back Testing
-Market Clarification
-Streamers

Portfolio tools and financial planners can help you identify your financial and retirement goals and suggest the best strategies for achieving them. These can be extremely useful in charting your investment options. As part of your broker evaluation consider only those companies with the easiest to use applications.

Stock evaluation tools can be essential in determining what stocks to invest in. The more readily a broker makes available information that clarifies the stock market, the better will be your success.

The last feature on the list, streamers, should be made available to your account at no extra charge. Streaming charts and data allows you to watch stock market behavior, which includes the latest real time prices. Other streamers can simplify the process by directly allowing you to buy and sell stocks without having to open other websites, facilitating your trades.

Many of the tools may cost extra. Compare brokers to determine which ones offer the greatest number of tools and features at no extra charge.

5) Access to Funds, Bonds and Foreign Markets

You will want to go beyond just trading U.S. Stocks. The broker should offer a range of mutual funds, bonds and foreign stocks. Try to determine what the broker has in these categories and whether or not you can gain access to overseas markets.

6) Customer Service

Make sure the broker offers good customer service and technical support. You can evaluate this through online reviews, checking forums and actually calling the customer service telephone number listed on the web site. Be sure you get a “live” person after a wait that doesn’t stretch into hours. Email the brokers, or access their online “live” chat application, if they have one. You should get a live customer service person within seconds, and they should be knowledgeable and helpful. Ask them questions to test their knowledge, for example about the tools online and what they do. Even as a new investor you should be able to get a feel for the broker and how much help you will get when you sign up.

7) Popularity and Reputation

It’s best to choose a broker that is well known. Choosing an obscure, low priced broker can, at best, lead to frustration, and at worst make you the victim of a scam.

Your first and foremost consideration are your needs as a trader and whether or not the broker you are looking at will be able to meet them. Financial factors, services, knowledge and experience in the online trading market are vital for you to achieve success.

If you are choosing a lesser known broker as a cost savings measure, be sure to do a web search connecting his name to the word “scam”. If there are problems with this broker, they may show up in posts in forums. Also investigate him with the Better Business Bureau and the FINRA Broker Check Program (found on the US Securities And Exchange Commission web site), which keeps a database of licensed brokers — make certain he is licensed and has no serious issues.

Choosing an online stock broker may seem difficult and even overwhelming at times, but as long as you keep in mind the important factors mentioned above, you will be on track to finding the right online stock broker.