How To Pick A Stockbroker
Following up from last week’s post on selecting a forex broker, I received several requests about picking a stockbroker who offers US-listed stock trading.
Before we get to that, I can share a simple process to help you eliminate the bad actors and find a broker who’s most suitable for your needs.
As with forex, always choose a regulated broker.
Any U.S. brokerage should be a member of theSecurities Investor Protection Corporation (SIPC) and the Financial IndustryRegulatory Authority (FINRA).
Regulatory authorities in other countries include:
- Canada: BCSC, CIPF, OSC
- United Kingdom: FSA UK
- Switzerland: SFDF,ARIF, FINMA
- Sweden: Swedish FSA
- Denmark: Danish FSA
- Spain: CNMV
- Japan: FFAJ, FSA Japan
- Hong Kong: SFC
- Australia: ASIC
- Dubai: DMCC, DGCX,DFSA, ESCA
If a prospective broker isn’t registered, they should immediately be removed from consideration.
Next, online security is another key point.Check how well a prospective broker protects your account from fraud and unauthorized access.
Does their website offer two-factor authentication? Are there also security questions or one-time, time-sensitive codes sent via text or email?
Ideally you want your broker to give you the option of requiring more than just your password. Especially if there’s a‘suspicious’ login from a new location or machine. It’s better to be safe than sorry.
Now for fees …
Does the broker charge a fee for opening an account? Are there any annual or monthly account maintenance fees? (Sometimes these fees are only charged if you don’t execute a minimum number of trades in a given timeframe.)
What’s the minimum deposit to open an account?
What are the margin rates, if you want to trade on margin? (This is essential if you’re planning to short stocks.)
And of course, be sure to check out the commission rates for various instruments too.
Are you going to be buying stocks only? ETFs?International brokers will often have different commission structures for stocks and ETFs listed in different countries and stock exchanges.
And how about options -- are they part of your trading plans? The commission structure will be different from stocks and ETFs.
Now for the platform.
As with forex, you want to be able to demo trade (or paper trade) before using the platform with a live account.
Daily and weekly charting is a must, unless you want to use a charting platform that’s separate from your broker. Be sure you can draw trend lines and curves and make notations about what you see on your charts. (As pattern traders, we don’t need indicators but we do need to highlight important patterns and levels and save those notes for a later session.)
Are real-time quotes available? Are they streaming or do you have to refresh the page to get a new quote?
Can you set up customized watchlists and alerts? Can you receive alert notifications on your phone or by email?
Does the platform provide screeners that you can customize to find stocks, ETFs, and so on that meet certain criteria?
Also, can you trade during any extended hours outside of regular trading hours? (Unlike forex, stocks usually don’t trade 24hours a day.)
It should also be simple to deposit and withdraw funds. There should be a variety of options available and settlement should be quick and painless.
Try out the customer service too. Get in touch via email or phone to see how quickly they respond and how helpful they are.
And now for the biggest issue for aspiring stock or options traders residing outside the U.S.: does the broker offer trading in US stocks and stock options?
Since (aside from forex pairs) I only tradeUS-listed stocks and their associated options, this is obviously pretty important if you want to follow some of my trades.
Unfortunately, very few US brokers support non-US citizens as clients. That’s primarily due to international regulations, customer service, and language translation difficulties.
While I can’t recommend any specific brokers for legal reasons, try searching for “International Brokerage Firms for Non-USResidents”.
Names that came up in my search results included Interactive Brokers, ZacksTrade, TradeStation, Firs trade, and Charles Schwab.
Again, I can’t recommend any of those names(or anything not on that list). But that might give you a starting point in searching for a broker that meets the criteria I’ve outlined in this short post.
Anyway, I hope this helped you understand what to look for in a stock broker.
Is there anything else you think should be considered?