A good broker can help you straighten out many of your questions and concerns related to investing, so being careful about picking the right one is essential to getting started as an investor.
To make the process a little smoother, we've put together five questions to ask yourself about brokers you come across in your research.
1. Is the broker offering any special promotions?
One way that brokers try to attract new clients is through special promotions. For example, many online brokers run programs from time to time in which new investors can trade commission free for their first three months.
Another popular promotion is waiving account fees for a new client's first year. While these incentives are certainly intriguing and may help you decide between two similar brokers, it's important to remember that promotions expire. If you're willing to transfer accounts frequently, however, choosing a broker based on offered promotions is an option in order to take advantage of these deals. However, keep in mind that transferring an account may incur fees of its own.
2. How much does the broker charge in commissions?
A commission is a fee charged by brokers for making a trade or purchase, so it's important to know how much that fee will be. In general, commission fees more than $10 per trade should be avoided, especially when it is possible to pay commission fees as low as $2.50 per trade at discount brokers like Just2Trade.
Some brokers may also offer commission-free ETF trading, such as E*Trade and Firstrade. It's important to do a little digging to uncover exactly how much you can expect to be charged on all different types of transactions before committing to a broker.
3. What is the minimum brokerage account balance?
One of the most commonly overlooked questions that new investors forget to ask is how much they'll have to pay in order to open an account with a particular broker. This is important because most brokers require a minimum balance from investors. If you move forward with the account but then drop below the minimum balance requirement, you might incur a fee.
4. What other fees does the brokerage charge?
In addition to commission fees, there is a host of other fees a broker could charge, including:
Hopefully it goes without saying that you should shop for a broker that charges as few fees as possible. Remember, having to pay money in broker's fees will seriously eat into your investment returns, so make sure you investigate this fully before choosing your broker.
5. What types of education or research tools does the brokerage offer?
One way to overcome investing-related fears is to be as educated about your investments as possible, and a good broker will help you with that. Online brokers offer reports and research tools to help you pick the right investment. Some discount brokers like TradeKing even offer free top tier tools and trading software including real time data, while other brokers may charge you higher fees because they include this service, so be sure to shop around.
The takeaway: If you're armed with the questions above, picking your first broker doesn't have to be difficult or intimidating. Remember, look at everything a broker charges and is willing to offer before making a final decision.
Neda Jafarzadeh is a financial analyst for NerdWallet, a site dedicated to helping investors find the best broker for options trading and stock trading.