As far as selection of a stockbroker goes, investors appear spoilt for choice. With hordes of brokerages, both big and small ones, vying for a share of your wallet, selecting the right broker can be quite a task. Here are a few takeaways you can use:
How to select the right broker
There is no hard and fast rule on how to select your stockbroker. But if you are an investor who buys shares for the long term, you may be better off selecting one of the biggies in the industry. While some of the big brokers do charge a higher commission compared to the local ones just around the corner, remember, the bigger ones offer premium services and a research back-up — something that is likely to come in handy in making investment decisions.
But, if you are a trader, you may be better off with the brokers who are frequented by many traders. This would ensure you a regular dosage of market grapevine and interaction with other traders. Nonetheless, make sure your orders get the required attention of the dealers, since more often than not, higher-volume traders tend to get higher priority in order execution.
This problem can be avoided if you choose an online trading platform, a product that most brokers offer nowadays. But before you zero-in on this, find out if the broker has an efficient customer service team in place and is well placed to handle "market meltdowns" — when markets rise or fall rapidly and the broker gets loaded with orders.
How important are the commissions?
Ideally, commissions should assume importance only when they threaten to eat up a significant chunk of your profits. This would be a problem more relevant to traders than the long-term investors, who, in comparison, might trade occasionally. High-volume traders, a rarity in these markets, can even consider negotiating their commissions with brokers — a plea that after some initial resistance, most brokers might agree with.
Alternately, such traders can also consider flat fee broking products, which charge fixed brokerage for a specified period, irrespective of the frequency or value of transactions. This ensures a limited trading cost even as traders enjoy the broker’s services and advice.
But if you are an investor, remember, brokerage commissions should be the least of your concerns. You should instead look at your prospective broker’s customer service efficiency, ease of payment and withdrawal of investments and the availability of other investment products, such as mutual funds, that can be seamlessly transacted through your account.
These additional service offerings stand to add more value to your investments than discount brokerage charges.
Why right broker matters
A broker’s role may only be limited to executing your orders, but, it nonetheless does not undermine his/her importance. Brokers’ ability to manage risk and margin money is very crucial.
Also most importantly, have a demat account in your name and never encourage your broker to keep your shares in their pool account. This is totally unadvisable since you get paid dividends and are assured of your shareholdings by the depositories only when the shares are present in your demat account. Make certain that shares get credited to your demat account on the stipulated day after transaction.