SAMPLE TRADING INSIGHT

Choosing the right broker

Choosing a broker can be a considerable challenge for a novice trader, and even more experienced traders should regularly evaluate what they want from their broker.  This decision becomes more complicated when you consider that different brokers will provide you with different levels of service.

The type of service you can expect to receive should be fairly clear once you understand the difference between brokers.  There are three kinds of brokers; full-service, discount, and online. As with most services, you get what you pay for.

Many traders will use a full-service broker when they first begin investing in the stock market.  A full-service broker, as the name implies, will give you the highest level of service.

Full-service brokers are likely to help you understand the jargon used in the stock market, recommend books for you to read, warn you if they think you are making a bad decision and generally act as a kind of 'financial-mentor' towards you.  This is great for a trader who is new to the market, but some experienced traders continue to use the same broker years after they first came to the market.  Many traders are happy with this arrangement, but some may find they are now paying for services they no longer use.

Discount brokers, also known as 'execute-only' brokers, offer a much reduced level of service in comparison to full-service brokers.  They are unlikely to recommend stocks for you to purchase in the way a full-service broker may, and will probably be less tolerant of you if you get your order confused.   A further consideration is that you will no longer have a personal relationship with your broker, rather, you will give your order to whoever answers the phone.  That being said, discount brokers do offer a reasonable level of service, and it is relatively easy to get in contact with the right person should anything go amiss.  Many traders find that discount brokers neatly straddle the line between service and price.

The final option is to use an online broking service over the internet.  These have gained in popularity over the past few years, as many traders find them a fast and inexpensive way to place transactions.  Further, as the technology behind these sites becomes more advanced, online brokers are able to offer a wider range of services.  For example, until recently it was almost impossible to find an online broker that would accept a stop loss order.  On the other hand, online brokers offer the most minimal of services, which could be a problem if you have an enquiry or concern.  And as with all brokers, ensure they are fully licensed by the Australian Securities and Investment Commission and are members of the Australian Stock Exchange. 

You must never forget that each time you are paying for a trade you are paying for a service from your broker.  Once you decide what level of service you want, choosing a broker becomes far easier.