Many investors simply following the crowd enters into stock trading and in a hurry, enters into a relationship with the online broker with no knowledge about their company history, years of experience, their offerings, expertise and how they are better than others. This is one big mistake!!!
One should never rush while choosing the online broker. You need to know the particulars of that firm before starting the investments and opening trading account. Communication is one strong factor between broker and investor which if well-executed will take your trading capital to grow in leaps and bounds. You should be so confident about the broker that you hardly have to re-evaluate your commission charges incurred by him. Such a high level of trust can only be obtained after studying about every aspect about that broker company.
Following is a list of actions which will help you ensure that nor that broker and also his firm is cheating you in any means:
- Get a detailed NASD report:
This facility is highly convenient. You just have to go the website of NASD and look for the broker or his name. If there are any past judgments or allegations over that firm, you would be able to know from this source. In fact a detailed report will be shared with you for free. This step would indirectly build a strong bond between you and the broker if he is fault-free.
- Ask as many queries and questions to your broker
You may ask different questions like:
- How much work experience he has in the existing firm?
- Why is he working for that firm?
- How many clients has he dealt with by now?
- How does he earn money being a broker?
- What does his advice is for you for initial investment?
Such questions will helpful you gain trust in him and his brokerage firm. This is the most common way of evaluating any broker.
- Try to find whether his firm acts in making markets
Normally when trading NASDAQ stocks, few firms known as Market Makers act as mediators between the buyers and sellers. In short, they buy stocks at a bid and sell at the offer price. With this information, you would know how the firm is making money from your account.
- See if the firm is on zero brokerage trading pattern
Online brokers have fixed commissions. Each website follows an own set of rules. Hence, read the firm’s portfolio and get very well versed with firm’s brokerage fees.
- Negotiate on commission or trading fees
When you try to contact the trading firm in person, you can see how open are they in negotiations and thus how they react to your offer. Most of the brokers would be only receptive to commission offers but never shift from their existing software pattern. It’s all fixed.
- Read about the firm in trading magazines and online journals
This is one of the most common sources of evaluation. If you get to see about your broker firm in leading magazines, you develop a sense of trust and reputation quotient for that firm.
Above are few tried and tested techniques which will help you evaluate the broker firm easily.