How to choose an online broker
Investors require the services of an accredited market participant in order to invest and trade in the share market. In response to the demand for greater flexibility and accessibility to stockbroking services, more participants offer online platforms to their clients.
Online trading platforms gives investors greater control over their portfolio and allows them to only avail of the services they need or want in exchange for more flexible fees. However, some platforms suit certain investor types better than others.
Just like selecting investment assets for their portfolio, investors have to compare online broker platforms and select one that suits their requirements and investment style.
What is an online broker?
An online broker is a brokerage firm or market participant that transact with clients over the internet. It is basically a non-advisory or discount broker that accepts and executes trade orders from clients using a secure platform.
Investors can determine what to look for in a broker if they first evaluate their objectives and needs.
What to consider in the selection process
The increased connectivity, demand for improved accessibility and tighter competition among participants have increased the number of online trading platforms. This increases the investor’s need to be more selective with their choice of platform.
Before opening a trading account, investors should first identify the following:
- Investment goals
- Experience and knowledge
- Investment strategy: Active or passive
Investment goals
Investors should know their investment objectives. Knowing their objectives would narrow down the list of online trading software or platforms as some brokerages offer access to a greater range of asset classes and markets.
Experience and knowledge
Individuals should select a trading account based on their experience and knowledge as an investor. Online brokers have different features address certain needs and proficiency. For instance, a platform may provide account holders with basic market reports for free while others charge a higher fee for providing investors with detailed reports—a benefit that beginners may not understand or need if they don’t plan on trading actively.
Investment strategy: Active or passive
Investors should also know how to use the platform based on their objectives. There are some trading accounts that offer better rates or provide updated market information to active traders. Other platforms may also limit their services to lower fees for passive investors.
Each trade triggers a brokerage fee so the investor’s strategy and the way their chosen platform charges fees could stunt or usher the growth of their investments.
What features to look out for
Once the investor identifies their purpose for investing and what they need from a broker, they can start comparing online brokers according to the following:
- Platform interface
- Selection of investments
- Fees
- Customer satisfaction
Platform interface
Investors may ask the brokerage firm about their platform’s accessibility, security and ease of use, among others.
Since transactions are done through the internet, the platform should be accessible to its clients when needed and should also ensure the security of its clients’ information. Investors may ask how the firm treats the sensitive data it processes. Likewise, the platform should also be easy to use and convenient for the clients.
Selection of investments
Some online trading accounts offer a larger selection of investment assets than others, so this should also be a consideration when choosing a platform.
Since investors know what their objectives are and have an idea of the kinds of assets they wish to invest in, they should be able to narrow down which among the online brokers in their list can meet their needs.
For instance, some brokers may only provide Australian investments while others can also provide access to international and emerging market investments. Instead of owning multiple accounts, it’s best to simply choose the one that meets their objectives.
Fees
Each trade triggers brokerage fees. Investors need to consider how much they will actually pay for their trading account—a necessary consideration given the wide options of platforms that charge different fees.
Customer satisfaction
The biggest clue to whether an online broking platform should be a consideration is to find out how satisfied its clients are. Investors may want to do a quick search and read customer reviews about the platform to know if it may pose a problem in the future.
Seek financial advice
There’s no specific formula for choosing an online trading platform—what works for one investor doesn’t necessarily satisfy another. Investors should first identify their investment objectives, as this is an important part of building their retirement nest egg.
If in doubt, it’s best to seek the advice of a licensed professional who can take their personal circumstances into consideration.
This information has been sourced from the Australian Investors Association and Australian Securities Exchange.
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