Finding the Right Broker: 3 Types, 4 Tips & How to Open a Brokerage Account

By Chika


Last Updated: January 27, 2023


Choosing a stock and a stockbroker are similar processes.

Knowing your investing style is the first step, followed by setting some financial goals, of course (beyond making money, of course).

These days, there are more brokerage alternatives than ever before. Yet, the multiplicity of options has made selections more difficult.

Generally speaking, you'll have the option of:

You may reduce your list of possibilities and choose the greatest one for you by comprehending how each one functions and what it offers.

In this article, we'll examine the different types of brokers, how they operate, and how they bill, as well as some general considerations regarding the queries you should pose and the research you should conduct.



Who is a Broker?

An broker is an intermediary between buyers and sellers of stocks, funds and other financial instruments.

They can facilitate your trades without needing to meet with you in person or over the phone like a financial advisor; though, like advisors, brokers typically charge for their services in one or more ways.

Brokers may be online or offline, but they offer a lot of convenience to investors and traders, making them appealing to investors, particularly younger investors. There are three types of brokers you may come across:



3 Types of Broker

There are three types of brokers - full-service brokers, discount brokers and robo-advisors. 

1. Full-service brokers.

The investor's job is mostly done for them by a full-service broker.

They often provide more direct support, features and tools. Full-time brokers also provide human advisors and offer more specialized services, such as access to:

  • initial public offerings
  • estate planning
  • tax guidance
  • and other things

However, full-service brokers don't come cheap. They tend to charge annual fees, often a percentage of your investment portfolio.

2. Discount brokers

Discount brokers often let you make your own decisions, while also offering you the option of paying fees for consultations and guidance on a specific deal. 

3. Robo-advisor

Robo-advisors are computer algorithms which are programmed to manage your money for you.

Robo-advisors don't give you much control over your investments, but they carry out the legwork and are cheap.



Finding the Right Broker for You

Finding the right broker depends on a number of factors.

Here's what to look out for when looking for a broker that suits you.

1. Decide your investment goals.

The first step to finding a broker that suits you is by clarifying what your investment goals are.

  • Do you plan on being an active investor or a passive investor?
  • Do you have the confidence to invest on your own or you would prefer getting assistance from an advisor?
  • In terms of advisors which would you prefer - human or robo-advisor?
  • How much control do you want to have over where your money gets invested? 

These are some of the questions you need to ask yourself before deciding on which brokerage to choose. 


2. Look at service offerings and features.

Take a look at the service and features which the different brokers have on offer to find the one best suited for you.

Some features you should look out for are:

  • minimum deposits
  • educational resources
  • payment methods
  • ease of withdrawal
  • speed of order execution


3. Look at the costs.

A full-service broker could be the best option for you if you don't mind paying more for more hands-on assistance.

But if you prefer to spend less, look into a cheap broker or robo-advisor. To optimize your savings, look around and compare costs as they might differ between broker types.

While robo-advisors may charge between 0.25% and 0.50% of your portfolio balance, full-service brokers may charge you 1% to 2% of your portfolio yearly. 

For stocks and exchange-traded funds, discount brokers normally do not charge trading commissions. But, if you invest in mutual funds, options, or bonds, upgrade to premium services, or engage in margin trading, you may be charged.


How to Open a Brokerage Account

Choosing a broker and the sort of account you want is the first step in creating an account, which is not too difficult:

1. Apply with the broker.

Typically, you may submit an application online. But you may also have the option to do so by phone or in person at one of the broker's actual branches or offices. You'll have to disclose some personal information, your financial situation, your investing history, your risk tolerance, and other specifics.

2. Fund your account.

Fund it when your application has been approved.

Typically, you may accomplish this by entering your routing and account numbers or by joining your bank through a third-party service. You can also occasionally use a wire transfer, a cheque, or a transfer of securities from another brokerage account, however some methods need more time than others.

3. Familiarize yourself with the platform.

Explore the broker's mobile app or web platform to learn how the process works and how to use the many tools and other resources while you're waiting for your account to fund.

4. Start trading.

Once your funds reflect in your brokerage account, you can start trading/investing.



The Bottom Line on Finding a Broker

There a wide variety of online brokers, each of which has a unique set of features, services, and products.

The tips outlined above can assist you in choosing the ideal broker, but if you're unable to settle on just one, you can create many brokerage accounts and test them all out.

Remember that your investing strategy and objectives may vary over time, and the broker who is most effective for you today may not continue to be so in the future. Once or twice a year, review your investing strategy and broker to make sure it's still meeting your needs and, if not, make a change.

Photo by RODNAE Productions


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