When it comes to participating in the financial markets, the most important first step that investors take is finding the right broker they can work with. Brokers – or brokerages – are firms that provide traders with access to different markets and facilitate the execution of their trades. Brokers do not influence instrument prices on the market, but they do play a part in the fees and expenses that you may incur when you are trading, among other factors.
When you are choosing the broker suitable for you, you should consider what you are willing to accept and your conditions for trading. Understand that there is no one-size-fits-all approach – what this means is, while one broker may be perfect for a certain type of trader, it may not work for you, and vice versa. Therefore, the first thing you should do is understand your own risk profile, limitations, and preferences.
Therefore, in this article, we will look at the types of factors that you should first determine before you start comparing brokers and their offerings. Read on if you’d like to learn more and find the most suitable option for you.
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What to consider before comparing brokers
Before comparing brokers, it is essential that you as an investor understand what you are hoping to achieve or get out of investing. You should set some tangible goals, such as a set percentage of returns out of your investments or a timeline for investing. You should also determine your risk tolerance and the type of trader you are based on your available time for trading. This can steer you towards finding an appropriate broker and trading style.
Making sure brokers are regulated
Brokers operating in the UK should be authorised by the FCA (Financial Conduct Authority). The FCA is a financial regulatory body in the UK, and they are in charge of holding brokers accountable in their daily trade executions and general operations. They also ensure that a broker is compliant with local legal and regulatory requirements around capital adequacy and client money protection.
Therefore, the first thing that you must check when you work with a broker is that it is regulated by the FCA. Typically, you can find this information on the broker’s website, or you can go on the FCA’s register page to find the broker that you are considering. In the UK, Saxo is a well-known broker that is regulated by the FCA and compliant with local regulations.
Comparing brokers – factors to consider
Once you understand what your risk tolerance, trading schedule, and goals are, you can find and compare different brokers and see which ones suit you best. There are a few things you can compare:
- Commissions and fees
You should examine commission structures and trading fees when it comes to working with a broker. Those offering low-cost or no-commission trades are great if you plan on making a lot of trades and doing so frequently. This is so that these fees do not eat into your overall returns.
- Investment products and tools
You should also ensure the types of instruments that you can trade are available. Not all brokers provide the same market access, and you may not be able to trade all the instruments that you wish to trade with every broker. Ensure that you have checked what the broker offers before you sign up for an account.
If you are planning on using different research or trading tools, you should also make sure that the broker either provides it or is compatible with them.
- Customer service
Next, think about the capacity of the broker’s support team. Are they made up of IT people who can only help with account issues or financial experts who can offer insights into the markets and trading?
Consider whether your broker is an execution-only broker or if they can offer financial advice. Many brokers do not offer advice, and they only provide general guidance. Think about the level and quality of instruction and help that you may need, particularly if you are entirely new to the financial markets.
- Account types
Of course, you should consider the account types that a broker offers. Different accounts have different types of accounts and minimum deposit requirements, which can range from 100 GBP to 10,000 GBP or more. Open an account with a deposit requirement that you can easily meet, because if you fail to keep your funds sustained, you may end up having your account closed.
- Platforms available
Brokers may provide their own proprietary trading platforms or work with third-party platform providers like MetaTrader. Consider what your options are, and the level of sophistication that your platform can provide – from trading tools and technical indicators to order execution types that are available.
- Broker reputation
Finally, you should consider the broker’s reputation. Read reviews from real traders about their experiences working with the broker and consider whether that fits your requirements. This is an important step, as nothing compares to the experiences of real people, and you will be able to gain an understanding into how the broker really works and interacts with their clients.
Final words
Doing thorough research before selecting a broker is crucial. Remember that there is no one-size-fits-all solution, as every trader is unique with different trading goals and risk tolerances. You should ensure that you find a broker that meets your needs and can bring out the best in you. If in doubt, you can always reach out to the broker that you are considering to ask for more information.