Discover the six elements of the brokerage firm selection process. Selecting the right broker is crucial to trading success. We highly encourage every trader to carefully evaluate brokers based on the process below to provide the highest probability of trading success.
How to Choose the Best Stock Trading Broker for You
- Make a list of which brokerage firms are supported in your country.
The first step is to determine which firms will allow you to open a trading account in your country of residence.
Click here and scroll down to ” Which brokers support my country?” box to enter your country of residence and receive a list of brokers that will allow you to open an account.
- Determine which firms supported by your country are regulated by FINRA.
In the United States brokerage firms must be registered with FINRA. To keep your capital safe, cross off any firm on your list that are not registered by FINRA. Check the FINRA database by click here, then click the FIRM tab, enter the firm’s name, and click search to confirm your potential brokerage firm is registered.
- Account minimum required and margining requirements
Decide how much capital you are willing to trade with. Check each brokerage firm on your list to make sure the deposit you make will meet the minimum account size. For those that don’t, cross that brokerage firm off your list.
If you are unsure, please do some research on this subject. For information PRO or GO member, can review lesson 11 in the Fundamentals In Trading library . If you are not a monthly subscriber yet, please consider a free consultation to discuss your trading.
Please keep in mind when you place a trade the broker is going to require you to have a certain amount of money or capital in your account. Sometimes this amount is the same as the actual trade risk, sometimes it is less, and sometimes, depending on the type of trading strategies you have selected, a broker may require more capital in the account than a trade has at risk. It all depends on how your broker uses margin with the particular type of account you open. So before opening the account, give the broker examples of the types of trades you are doing and ask how they would margin them. Click here for more information on margining.
- Trading and analytical needs for your selected trading strategies
Real time data and execution speed are critical to a day trader but relatively unimportant to a long-term investor.
Risk graph analytical capabilities and proper margin calculations on complex options positions are very important to complex options traders but of little use to most equity day traders.
The needs of a day trader can be very different from a long-term investor and both are very different than the needs complex options trader. Different brokerages specialize in different types of trading. It is very important that your brokerage platform support the needs of your particular style of trading.
- Clarity of the platform and ease of use
It is in your best interest to use a brokerage platform that is understandable and easy to use for your type of trading. You want to use your brain power for trading, not for trying to work around the inadequacies of a trading platform that is not suited for your type of trading. This will help things go much more smoothly and reduce costly trading errors.
A mobile trading application is imperative for those who need one. Be sure to consider this if it applies to you.
- Commissions and fee structure
Many traders put commissions and fee structure at the top of their decision tree. We would like to challenge that thinking.
While commissions and fee structure are an important consideration, they are much less important than having a platform you understand.
Commissions and fee structure are less important than being able to quickly construct and execute orders. Less important than having the tools you need to choose and monitor your positions. And less important than making sure the brokerage is solvent.
So, our advice to you is to find brokerage platforms that best suit your trading needs first, and then compare those brokers for commissions and fee structure.
Learning and maintaining your options trading strategies is critical. This brokerage firm selection process helps you to discover the broker that may be best suited to your individual needs.