How to Pick a Reputable Online Broker

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If you've decided to trade online, you shouldn't just pick the first brokerage firm you find via a Google search. There are a number of factors that you should consider.

Types of Online Brokers

There are different types of online brokerage firms that deal in specific types of markets and assets. The various types of online brokers are:
●    Full-service brokers offer a full range of investing advice and usually charge higher commission rates.
●    Discount brokers will usually not offer investing advice and charge lower commissions.
●    Stock brokers focus on stocks, exchange-traded funds, and mutual funds.
●    Foreign exchange brokers facilitate currency trading.
●    Commodity brokers offer futures, contracts for difference (CFTs), and other derivatives.

Why We Need Brokers

A brokerage firm is a conduit between the investor and the market itself. A person cannot just call up the New York Stock Exchange and place an order for 100 shares. It takes a brokerage firm to place the trade.

Investors who have little or no knowledge about investing should consider a full-service firm. A full-service firm will give advice, make investment recommendations, and place orders to buy or sell.

Those who are knowledgeable about stocks and investing may not want recommendations from investment advisors. But they still need a brokerage firm to make the trades with the exchange. These types of investors will most likely choose an online discount broker.

Most online brokers provide helpful information about investing like business and stock market articles, charts, and investing ideas. This is helpful for investors to make their own investing decisions.

Security

It is critical to work with a trustworthy broker. Trading of any asset is risky enough. You don't want to worry about your broker.

There are two major aspects of this: regulation and online security.

Regulation

In the United States, brokerage firms are regulated by the Securities Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). Forex dealers are also regulated by the National Futures Association (NFA).

If the brokerage firm offers savings accounts, checking accounts, money markets, or CDs, make sure they are covered by the Federal Deposit Insurance Corporation (FDIC).

All reputable online brokerage firms should be members of the Securities Investor Protection Corporation (SIPC) and the Financial Industry Regulatory Authority (FINRA). If they are, it will be posted clearly for customers to see.

Online Security

You need your accounts and personal information secured. Be sure your broker offers:
●    Two-factor authentication.
●    Security questions and answers in addition to passwords.
●    Policies that forbid the selling of customer information.
●    Encryption to protect account information.

Commissions

Make sure to understand the broker's commission schedules on all types of investments you intend to trade, especially if you trade often.

Some online brokers offer free trades for only certain kinds of trades or assets. They might charge for others. So be aware of this.

If someone is planning to trade options, it is important to compare commissions. Some online brokers charge a commission plus a per-contract fee for options. Others will charge only a commission or only per contract.

The takeaway here is that commissions are often complicated. It's critical to understand them when choosing a broker.

Account Minimums

Some online brokerage companies have a minimum amount requirement, which can hinder the small investor. These minimums can range from $500 to $2,000 to open an account. Other firms might allow a lower minimum as long as you agree to deposit money on a regular basis or link your bank account to them. Not all brokerage firms have a minimum requirement, however.
Make sure to check for any and all types of fees other than commissions.

Trading Platform

A trading platform should be simple to understand and intuitive to use, especially for those new to investing and trading. This is where customers will buy and sell assets on their own.

Most trading platforms will also offer tools for investors. Some are quite simple like the ability to search for specific assets. Others are more complicated like analysis tools.

At times customers need to talk to a real person. All reputable brokers offer live help for customers to get help with accounts, trading platforms, and other questions.

Summary

Above all else, any broker you use should be suitably regulated and secure.

Beyond that, a good online broker should have competitive commissions and minimal if any additional fees. They should have a trading platform that works well for you. And finally, they should provide you with live customer support.

Read online reviews and check each online broker's reputation. Once you have narrowed your list of potential brokers, see if you can get a demo account and try them out.