A broker is your intermediary on the exchange, a transfer agent who will conduct transactions on your behalf. Having signed a contract with a broker, you become an investor, that is, you start gambling at stock value changes and receiving dividends.
Before selecting a broker, check if he or she has the legal right to trade on the stock exchange. Specify whether a particular brokerage company is registered with the tax authority and whether it has a license to work with clients.
Key selection criteria
Despite the large number of companies ready to provide you with brokerage services, choosing a broker for financial trading is not as easy as it may seem. Here are several key criteria that will see you through your search:
- Reliability rating
The higher the ranking, the better. It is markrd by letters from A to D. The maximum rating is AAA, followed by AA + and A, with the minimum being D. In an ideal scenario, the broker should be ranked A or higher.
- Access to stock exchanges
Reputable brokerage companies provide access to most of the stock exchanges (for example, New York Stock Excange, LSE, Nasdaq, Hong Kong SE, Frankfurt SE, Tokio SE, CME, Shanghai Stock Exchange, Toronto SE, MOEX, etc.).
- Minimum deposit
It is a Starting Amount to take the broker and start trading. It may be hundreds of euros. It will not do to start with less. However, there are exceptions: for example, in the online market of Freedom24.com, the threshold is 100 euros.
The broker charges a commission from each transaction (approximately 0.1-1%). The amount is of significance if you count on trading actively. Investors with long-term plans should take into account the minimum commission. Some brokers set a minimum, the amount they are to receive per month or annually. If the commission has not reached a minimum (for example, 200 euros per month), you are charged extra money. If you count on consistent trading, such a minimum will not affect you in any way. A risk-averse investor should look for a broker who does not take extra money.
Is it in broker’s best interest to ensure trader’s profit?
The broker charges commission from any transactions and suffers no losses regardless of the results. But it does not mean that the broker does not care if the trader gets his profit.
The broker's commission depends on the number of clients, the amount of investments (that is, the sums you invest in shares), the number of transactions. It is to his advantage that you should ‘acquire the taste’ and make a profit, making as many transactions as possible. If you lose money, all of it or some part, it is possible that you may withdraw from investing entirely. You lose money - the broker loses a client. To avoid it, he provides up-to-date and reliable information and recommendations, draws up portfolio of shares to ensure exposure diversification. This is very important when comparing securities with other financial instruments (more often existing on-screen, in electronic form).
How to sell shares without hiring a broker?
The quickest and easiest way to sell shares is through a brokerage account. Despite charging commissions, this method is the most convenient indeed, since it is easier to find counterparty to the deals on the exchange.
However, an individual can sell shares without a broker after concluding an act of purchase and sale. This way of conversion of securities is more time-consuming. As a first step, you need to confirm ownership of the shares, and to achieve this you will have to contact the securities register-keeper. After that be sure to secure another important goal - the re-registration of securities. Thus, in order to sell shares under the act of purchase and sale, you will have to spend some time on settling all the legal subtleties yourself. Under a brokerage contract, time expenditures are significantly reduced, and the trading procedure is exponentially simplified.