A complete list of factors an investor must consider before choosing a broker
Do beginner and advanced investors address any topic more than brokers and their selection? Probably not. And understandably so - it's extremely important. Here's an overview of factors that might help you in your selection and decision making.
I'll start by writing that you can find detailed reviews and analyses of all brokers here on the site (search, or on my profile and on the profile of my colleague @pavelbotek ), where we've covered each broker several times. You will find dozens of reviews and comparisons here. Nevertheless, I am attaching a few of them:
eToro investment platform review
eToro taxes 15%! Comparison of brokers with Bulios
Trading 212: Best broker for beginner investors?
XTB review: Is it the most fee-advantaged broker on the market?
This review will serve more as a guide to evaluate your own priorities and summarize your own plan. Simply an overview of factors to consider before choosing a broker :)
What to consider?
First, you need to answer a few questions of your own. Are you hoping to invest in a few individual stocks? Or just passively pumping money into ETFs? Are you interested in day trading or more advanced investment strategies like options? Once you know the answer. you can choose a broker based on several criteria. I've ranked them according to my subjective importance, but even that can vary from investor to investor.
1) Security
2) Fees
3) Tools, education and features
4) Minimum and maximum values
Security
Safety first. Always, everywhere. Period.
There is a wide range of brokers. Some have been around for decades, others are relatively new to the scene. That doesn't mean these newcomers are untrustworthy - all the well-known and solid names are audited by the Securities and Exchange Commission and other authorities. But it does mean that they are untested during various stock market scenarios. We just don't know how they will perform in a situation they haven't been in before.
Take, for example, the utter carnage surrounding GameStop in early 2021. In that case, we saw many smaller brokers curtail trading in some form, while others did not. Why? It's quite complex and probably not uniform across all companies, but the short answer is that the largest and most established brokerages had enough cash to guarantee that their clients' trades would go through - a guarantee that regulators require. Brokers that did not have enough cash to cover capital requirements had to impose trading restrictions. Of course, a good sign is the reviews of other users, in whose favour, for example, some unusual situation was resolved. Support in our language is also not out of place - although I believe most of us can already speak English without a problem. This is especially good from the point of view of localisation, as the local support is much better able to answer questions about taxes, for example, which are specific to each country.
Interested in more on broker security? I have covered insurance etc. in this article: Are your investments safe? A complete overview of the amount of investment insurance for all brokers
Fees
Second comes an equally important factor, but one that can drastically affect your final results. And when I say drastically, I mean really drastically!
You may not be able to avoid account fees altogether, but you can definitely minimize them. Most brokers charge a fee for transferring investments or cash or for cancelling an account. If you are switching, the new company may offer to cover the transfer fees, at least up to a limit.
Most other fees can be avoided by simply choosing a broker that doesn't charge them, or by opting for services that are more expensive. Common fees to watch out for include annual fees, inactivity fees, trading platform subscriptions, and other research or data fees.
You will mainly encounter fixed and percentage fees . Simple reasoning - if you are going to invest amounts on which the percentage fee is higher than the fixed one, it is not worth it. Conversely, if you are investing in smaller amounts, the higher fixed fee could have a significant impact on your results. Also beware of fees that are hidden in the e spread. That is, in the difference between the broker's purchase price and the actual purchase price.
The amount and form of fees should also be addressed by traders or very active investors who execute multiple trades.
Which broker will you pay the least? A complete list of all brokers' fees
Other tools
Education - it's not necessary, you can find a lot of quality content elsewhere than directly at the broker (for example here on Bulios 😇), but it's not a bad thing if the broker offers it.
Other tools are more for more experienced investors and traders. I probably wouldn't recommend options, leverage and other derivatives to complete beginners. But if you know what you are getting into and want to go for it, then it is advisable to choose a broker that offers this in full force.
Another great feature to look for is fractional shares, which allow investors to buy stocks or ETFs by dollar amount rather than by number of shares. This is especially useful for investors who aren't investing large amounts but want to build a diversified portfolio or want to do DCA.
Read more about fractional shares here: How to tax fractional shares? Here's the answer from top experts
Traders may want a little more from their account. Some brokers offer highly customizable downloadable platforms with tools for almost unlimited detailed analysis or access to additional research and data for an additional fee. Unless these are the types of tools and resources you need, be sure to avoid paying extra for them.
Minimums and maximums
With some brokers, you'll encounter limits - usually lower ones. Understandably so. Everyone wants you to have as much invested with them as possible. But then the terms may be set for you individually. So most people are concerned with the lower limit here. Some brokers require a minimum initial investment, which tends to be in the tens to hundreds of dollars.
Other factors are many - whether it's the friendliness of the app, platform and community, or perhaps the social dimension of the broker. But I think we've listed the most important ones.
What did you use to make your decision? 🤔
Disclaimer: This is by no means an investment recommendation. This is purely my summary and analysis based on data from the internet and other sources (broker sites, my older articles). Investing in financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.
