How To Choose The Right Broker For You

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How to Pick a Broker

Do you need a full-service broker, a discount broker or a online account?

Picking your broker is not much different from picking a stock. It starts with knowing your investing style. And today you have more options than earlier generations could dream of.

Defining a Broker

There are two types of brokers: regular brokers who deal directly with their clients and broker-resellers who act as intermediaries between the client and a larger broker.

Regular brokers generally are held in higher regard than broker-resellers. That’s not to say that all resellers are inherently bad, just that you need to check them out before you sign up. Regular brokers such as those who work for TD Ameritrade, Capital One Investing, and Fidelity are members of recognized organizations such as the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC).

Full-Service or Discount Brokers

There is a further distinction between full-service brokers and discount brokers. As the name suggests, full-service brokers routinely offer individual advice and recommendations, and these services don’t come cheap. A full-service broker does much of the legwork for the investor.

Discount brokers generally leave you to make your own decisions, although many offer the option to solicit a broker for advice on a particular trade for a fee.

Some recommend a full-service broker for new investors. But frankly, it’s often not feasible for a young person to go with a more expensive full-service broker.

Today’s online discount brokers typically provide a vast array of tools for investors of all experience levels. You’ll learn a whole lot more about investing if you do the legwork yourself.

Costs and Fees

If you’re under 30, chances are you’re limited by your budget. Trade execution fees are important but there are other brokerage fees to consider. Knowing the fees and other charges that might apply to you is essential to making the most of your investment dollar. Here are some costs to consider:

  • Minimums: Most brokers require a minimum balance for setting up an account. Online brokers typically have the lowest minimums, ranging from $500 to $1,000.
  • Margin Accounts: A new investor might not want to open a margin account right away, but it’s something to think about for the future. Margin accounts usually have higher minimum balance requirements than standard brokerage accounts. You also need to check the interest rate that your broker charges when you make a trade on margin.
  • Withdrawal Fees: Some brokers charge a fee to make a withdrawal, or won’t permit a withdrawal if it will drop your balance below the minimum. On the other hand, some allow you to write checks against your account, although they typically require a high minimum balance. Make sure that you understand the rules involved in removing money from an account.

Fee Structures

Some brokers have complex fee structures that make it harder to figure out what you’ll be paying. This is particularly common among broker-resellers who may use some aspect of a fee structure as a selling point to entice clients.

If a broker seems to have an unusual fee structure, it’s all the more important to make sure that it’s legitimate, that it will suit your best interests, and that the fee structure complements your investing style.

If the rates seem too good to be true, read the fine print in the account agreement and fee summaries. Additional fees can be hidden there.

Investment Styles

Your choice of broker should be influenced by your investment style. Are you a trader or a buy-and-hold investor?

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Traders don’t hold onto stocks for a long time. They’re interested in quick gains greater than the market average based on short-term price volatility, and they may make many trade executions over a short time span.

If you envision yourself as a trader, you’ll want to look for a broker with very low execution fees, or trading fees could take a big bite out of your returns.

Also, don’t forget that active trading takes experience, and the combination of an inexperienced investor and frequent trading often results in negative returns.

A buy-and-hold investor, often called a passive investor, holds stocks for the long term. Buy-and-hold investors are content to let the value of their investments appreciate over longer periods of time.

Many investors will find that their investing style falls somewhere between the active trader and the buy-and-hold investor, in which case other factors will become important in picking the most appropriate broker.

As an alternative to a human broker or broker-reseller, it’s worth investigating the pros and cons of using a robo-advisor.

The Bottom Line

There are a number of factors to consider when picking your first broker. With Investopedia’s online broker reviews we’ve created the most comprehensive toolset to help traders of all styles make informed, efficient, and intelligent decisions on the right online broker.

Your first broker won’t necessarily be your broker for life. Your life will change, and your needs as an investor may change along with it. But you have a much better chance of making money as an investor if you put in the time it takes to choose the right broker to start with.

How to Choose a Real Estate Broker

As a new real estate licensee, the first step you’ll need to do is choose a real estate broker. The process of picking a broker can start early, as some states require that you be sponsored by a broker when you take your real estate exam. Don’t let the process of finding a real estate broker to work for intimidate you. We’ve put together some information to help you learn how to choose a real estate broker that’s right for you.

How do you select the best brokerage for your new career? Review the following five steps to learn how to choose a real estate broker.

Step 1: Ask about the commission split

Most real estate agents get paid on commission. When you’re not selling, you’re not getting paid. But when you’re selling, you’re going to split the proceeds with your broker. Brokers offer different commission structures. (And some brokers offer salaried positions, but these are few and far between.) While factors like company culture, resources, market share, reputation, and support will also come into play, you’ll want to pick a brokerage that offers you a commission split you can live with—keeping in mind that commission splits often get better with experience and sales volume.

Here’s how commission splits work: Let’s say you sell a $300,000 home and the average commission in your area is 6%. That 6% is first split between the buying and selling agent. Now you’re down to 3%, which works out to be $9,000. Next, you’re going to have to share that with your broker. If you’re on a 60/40 commission split, you’re taking home 60% of that $9,000, or $5,400. Of course, this is before expenses and taxes.

What’s a good commission split? That depends on the business, your market, the broker’s support and resources, and a number of other factors. Just make sure you understand the split and how you might get a bigger percentage over time.

Keep in mind that some brokerages these days are offering real estate agents a salary and benefits, or a hybrid model, so you might want to shop around if this approach to compensation appeals to you.

Step 2: Evaluate the brokerage culture

Before you choose a real estate broker, ask yourself: What kind of company do I want to work for? How much support do I want from my coworkers? Just like other businesses, real estate brokerages develop a company culture that informs the way they do business. Are you looking for a small, mom-and-pop brokerage with an intimate, family-like brokerage culture? Or would you prefer a big-box franchise brokerage that’s more likely to let you fend for yourself? Are you looking for weekly get-togethers and company caravans on open house day? The best ways to know and understand a company’s culture are to chat with agents who work there or attend a company function.

Step 3: Decide between a franchise or independent brokerage

When it’s time to choose a real estate broker, another big question to consider is whether you prefer to work for a franchise or independent brokerage. Big-name brokerage houses like RE/MAX or Keller Williams have offices all over the country. A mom-and-pop brokerage might have been serving a single community for generations. Franchises tend to exert more control over their agents than an independent firm, but they usually offer more support and training. Independent firms are usually locally based and consist of a small- to mid-size team. The benefit of working for an independent broker is that you have more freedom to conduct your business the way you want to.

The National Association of REALTORS® reports that the majority of REALTORS® (53%) choose to work for independent firms. If you relish your independence and dislike corporate culture, an independent brokerage may be the way to go. The main advantages of a franchise are the many resources they offer in terms of information and marketing support—and the name recognition.

Step 4: Learn its reputation and niche

When you start your research, begin with a simple Google search as if you were a buyer. Search for “homes for sale in [community name]” and see who comes up. You want the brokerage you select to have a strong market presence and a quality reputation. If they have a high market share, you can depend on them to help you find leads. And we all know how important a brokerage’s reputation is.

Just as important is the niche your brokerage is in. Studies show that the right brokerage can triple your income. The right niche for you will probably be a combination of your interests, lifestyle and the opportunities available in your area.

Step 5: Make sure it will offer support

Some brokerages are very hands-on and offer extensive mentoring, free training, and marketing collateral. Other brokerages are just places to hang your hat while you get to work growing your own business. You might take the occasional sales training class or meet for a monthly brokerage meeting, but otherwise, you’re on your own. You’ll find many variations between the two extremes, and it’s largely a matter of finding the corporate culture that you prefer.

When you’re ready to choose a real estate broker, keep these considerations in mind. Finding the right brokerage involves research and interviewing. Don’t be afraid to sit down with several real estate brokerages in your area to see who fits the best with your learning style and business goals.

Why it’s necessary to choose a real estate broker

Why is broker selection so important? In your first year as a real estate agent, you’ll have a ton of questions, uncertainties, and getting-your-feet-wet experiences. You’ll need to choose a real estate broker that will be there with you each step of the way.

When you’re first starting out, you won’t have the funds to compete with the big real estate brokerages when it comes to marketing, lead generation, and conversion. You’ll need a broker’s help getting your name out there, and you’ll want to use the broker’s tools and systems to kick start your career.

Guide: How to Choose a Forex Broker

With hundreds of Forex brokers to choose from, selecting the right one can be both challenging and time consuming. To ease the process, we’ve tested and reviewed dozens of the top Forex brokers and compiled our findings into thorough Forex brokers reviews. But don’t just take our word for it – each Forex broker review also includes feedback from real traders, so that you can make a comfortable, informed decision.

The basic criteria to use in choosing a broker are few and simple. Without doubt, your number one priority should be ensuring the safety of your funds. Firstly, this means making sure that the broker you choose will not steal your deposit. You can best take care of this by making sure that you only use a broker based in and regulated by a financial authority in a respected financial center. Secondly, you need to make sure that even if the broker operates honestly, but goes bankrupt for any reason, that you will be able to recover your deposit. One measure that can be taken here is to only deposit with brokers whose regulators offer deposit protection for clients (such as regulated brokers in the U.K. or Australia, for example). This means that even if your broker goes broke, the government will bail you out by paying back your funds up to a certain amount, although it might take some time. Beyond that, try to choose a broker with a healthy financial situation and a good reputation. Once you have taken these precautions, you can look at what your potential brokers offer in terms of range of available assets to trade, spreads and commissions, overnight financing charges, and speed and reliability of trade execution – and make your choice accordingly.

Use the below links to navigate through the guide:

Things to Consider When Choosing a Broker

Regulation and compliance are – beyond the shadow of a doubt – the most important things to consider when choosing a broker. An unregulated broker can essentially do as it pleases with its traders’ funds. Such a broker might be nothing more than an online scam, so it worth being extremely wary of any unregulated brokers.

Regulatory Compliance

The activity of a trustworthy broker should always be governed by an official regulator designed to protect and promote the integrity of brokerage operations. All types of abusive practices linked to the sale of futures and options should be out of the question, as traders should be protected against fraud as well as manipulation. A US broker must be registered with the US Commodity Futures Trading Commission (CFTC) as a merchant and retail Forex dealer. It also must be a member of the NFA (National Futures Association). These credentials are usually listed in the About Us section of the broker’s website. Equivalents of these trade associations and regulatory bodies are present in nearly every country in the world. Depending on where their broker is based, traders should always research and look for these credentials. In this respect, it’s also worth researching the year when the broker obtained its license as this might carry some significance as well, in regards to the overall reputation and operational history of the broker.

Safety of Funds

Regulated brokers must comply with a set of rules that are meant to safeguard investor assets. This is the primary reason why regulation is so important. Every regulated broker is subject to a “Net Capital Rule” which prescribes a minimum amount of capital to be kept in liquid form. This way investors are protected with a ‘safety net’ in the event that a broker is forced to close. In addition to the requirement of maintaining minimum capital requirements, regulated brokers in most jurisdictions are required to keep all client funds separated in segregated accounts so that client funds won’t accidentally (or purposely) be used for any reasons other than to execute the client’s trades. Some nations, such as the United Kingdom, even offer government-backed deposit insurance for its regulated brokers so that clients can recover part or all of their funds even if the broker manages to misappropriate them.

Select a Forex Broker by the Type of Trading Platform :

Broker Types

The type of broker used can have an impact on one’s overall trading performance and results.

Dealing Desk vs. ECN Brokers

Dealing Desk brokers work similarly to the dealing desks provided by various financial institutions and banks. A Forex broker who uses a dealing desk and is registered as a Retail Foreign Exchange Dealer and Futures Commission Merchant (or equivalent in another country) can offset trades. The No Dealing Desk system on the other hand offsets positions automatically and then transmits them to the interbank market. Brokers working through a Dealing Desk system do not work directly with market liquidity providers, therefore only one liquidity provider remains in the equation, and that gives birth to a fundamental conflict of interest.

An ECN broker on the other hand, offers its traders direct access to the other market participants through an Electronic Communications Network. Why is an ECN broker the superior of a Dealing Desk one spreads-wise? Simple: because it deals with price quotations from several trading entities, it can offer much better bid/ask spreads.

The business model of an ECN broker is an entirely fair one, as it eliminates a major conflict of interest: because it matches trades between various traders, it cannot become the sole market-maker, thus it cannot trade against its own clients. Another advantage of the ECN is that because of the lower spreads it offers, such brokers can charge a fixed commission on every transaction.However, you should not see ECN brokers as a panacea. Under certain conditions, their liquidity can dry up completely, creating much greater slippages than Dealing Desk brokers’ client might be suffering. Another sad reality is that many brokers describe themselves as of the ECN type, but have an element of dealing desk within their operation, so are not “true” ECNs.

Top Rated Forex Brokers

Fees & Commissions

This brings us to the third most important brokerage selection factor: costs

Brokerage fees – Price isn’t everything

Brokerage fees are fees that the broker charges for the services it offers, which are services focused on facilitating transactions between buyers and sellers. The amount of these fees depends on the broker type, and the type of service to which the trader signs up. For the purposes of retail traders, the situation is best summarized by saying the Dealing Desk Brokers charge spreads only, while ECN Brokers charge spreads as well as commissions.

Commissions & Spreads (Fixed or Non-Fixed)

The key difference between fees and commissions that all traders need to understand, is that fees represent a flat charge, while commissions vary depending on the delivered financial product and the size of the transaction.

Premium services offered by the broker?

Full service brokers offer all sorts of additional perks and premium features, some of which are indeed extremely useful. Such services do cost extra though. In this respect, what you should be looking for is a broker who includes as many premium services as possible, as cheaply as possible. In the premium service category, we have features like advice and research covering a wide range of traded assets, retirement advice, tax planning etc. You need to carefully weigh whether you need such services or not. If you’re only looking to execute trades, there’s no point in getting embroiled in any premium-service intricacies. Discount is probably the way to go then.

Does the broker credit or debit daily rollover?

Another factor to consider is daily rollover. The daily rollover is interest credited or debited to the entity holding a Forex position overnight, depending on the relative interest rates of the currencies involved in the trade. Positions which are kept open past 5PM EST are considered positions held overnight. In such cases the broker will consider which national currency the trader bought relative to the other national currency of the pair. If the interest-rate difference favors the bought currency, the trader will have rollover interest credited: in theory, at least. If it’s the other way around, the interest will be debited. The problem is that most brokers make sure their clients pay for holding most positions overnight, and there is nothing to stop them doing this beyond the true market cost.
Most brokers roll over open positions automatically. It is important to know that the rollover interest (whether it’s debited or credited) is calculated on the full amount involved in the trade and not on the margin alone. Another important thing regarding the rollover interest is that it represents a separate revenue stream from the capital gains and as such, it will be taxed separately too, as interest income.

Trading Terms

Time to shed some light on the expressions and terms you may have come across within this guide but that haven’t been fully explained until now.

Select a Forex Broker by Country/Region

Margin

Through a margin account, the investor essentially borrows from the broker, with the intention of controlling larger positions than he’d be able to control based solely on his own invested capital. There are special margin accounts that traders can use for this purpose. The margin percentage is set to 1-2% in the case of accounts which trade in 100,000 currency units. What this means is that in order to control a $100,000 position, a trader needs to deposit $1,000. Margin accounts come with their own risks, and special operating procedures meant to reduce risk for the trader as well as for the broker.

The difference between margin and leverage is simple. Let’s say a broker requires a deposit of $1,000 to make trades worth up to $100,000. The leverage is the factor by which the deposit is multiplied to reach the maximum trade value: in this case, 100, so the leverage is 100 to 1. The margin is simply the amount of deposit required as a percentage of the maximum trade value. Here, it is 1%. It is just the flip side of the earlier calculation.

Leverage = Maximum Trade Value / Deposit

Colloquially, “margin” is often used to refer to the cash deposited with a broker.

Initial Deposit

The initial deposit is the first deposit a trader makes with a broker. This deposit may be subject to special rewards, such as bonuses.

Bonuses & Promotions

Bonuses and promotions are marketing tools used by the broker to “sweeten” its offer, and thus to attract more business. You might want to consider whether a really top-quality broker would feel the need to offer such incentives.

Customer Service

Customer service is very important for new traders and experienced investors alike. Whenever one runs into any sort of trouble with his or her broker, it is the duty of the customer service agent to iron everything out. As such, the expertise, skills and availability of the customer service staff should be a factor within the broker selection balance.

Availability

Funds deposited into trader accounts through third party checks typically take some time to clear. Once they do, they become “available”. Availability hinges on the bank from where the check originates, and the availability schedule of the broker.

Trading Platforms

The trading platform is the gate between the retail trader and the markets. It is also the tool through which the trader performs his trading. A proper, simple, fast and user-friendly trading platform is critical in trading successfully.

Ease of Deposit & Withdrawal

Being able to make deposits and to withdraw money from your broker quickly and easily is highly important. This all depends on the type of withdrawal and deposit options your broker supports. The selection of these payment solutions needs to be as large and as diverse as possible. It is also a good idea to check the withdrawal time, as many traders complain that it can take up to a week to withdraw, when they wanted their funds available quicker.

Minimum Balances

The term “minimum balance” refers to the amount of money the trader needs to keep in his/her account to keep the account open and to receive the services he/she has signed up for. Obviously, the smaller this amount is, the better it is for the trader.

Instruments

In the context of Forex trading, an instrument is defined as a tradable asset, and any asset underlying a derivative. Commodities, stocks, indices and currency pairs are all trading instruments, because through them, value is held and/or transferred.

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