How to Choose Your First Broker
If you are planning to invest, your main goal is definitely to earn some income. When you want to invest, you must have a brokerage account. Brokers are important as they simplify investing. For younger investors, however, the first question that crosses their mind is how to choose their first broker. Older investors spend no time pondering on this question as they already know what to consider.
Before we go into details on the entire process, let us first understand who brokers are. Basically, there are two types of brokers. We have regular brokers and broker-resellers. The former have direct contact with their customers while the latter act as middlemen connecting the customer to the main broker. And although it is advisable to deal with direct access brokers, there are still some broker-resellers who are very genuine.
Discount broker vs. full-service brokers
When you are planning to invest, you must decide whether you want to deal with a discount broker or a full-service broker. When you approach a full-service broker, you are assured of getting access to your account. Moreover, such brokers also provide other services such as retirement and financial planning. You will also get investment advice from your broker when you are dealing with the full-service one. Most of the times, people entrust all their investments to their full-service brokers and learn about the performance of their investment through monthly statements sent by the brokers.
While investing, you may also choose to deal with a discount broker. This broker is unlike a full-service broker that will provide you with many services. When you follow the advice of a discount broker, you are more likely to make huge benefits than a person relying on a full-service broker. Moreover, you can know so much about investment from such an investor. Consulting a discount broker is the first step toward getting direct access trading and becoming a great trader.
Although full-service brokers provide many services to their clients, they also charge hefty fees. To make matters worse, not all brokers are good meaning and the earnings from your investments may end up only paying the fee. The broker may also give you bad advice making it hard for you to earn from your investments. You may also land a broker who is only interested in making earning commission from your account and not assisting you to make good money.
Discount brokers provide fewer services than full-service brokers. Consequently, their charges are much lower. Furthermore, they provide their customers with essential services that are especially helpful in making wise investment decisions. For instance, they teach on opening an account or moving money. They can also assist you to invest in areas that require minimal experience but have good returns such as mutual funds.
There are other important factors you should consider when you are choosing your first broker. Some of these include;
The withdrawal process and charges
Even after investing your money and making huge profits, sometimes it may a bit hard to withdraw your cash. Yes, it is your hard-earned cash and you have the right to get it, but there is someone who wants to hold our money. Not all brokers approach this issue the same way. Some brokers will charge a fee while others will not allow a withdrawal of a certain amount as your account balance will go below the minimum. It is advisable to make sure you understand all the rules of a given broker before putting your money there.
Whether they are registered
It is important to ensure that the broker you are dealing with is registered by the Financial Industry Regulatory Authority (FINRA). FINRA is an autonomous agency that licenses and creates rules that govern this sector.
Consider the fee structure
Although many brokers have fee schedules that resemble each other, it is not surprising to come across a few with complex fee structure. Most broker-resellers have such fee structures making it hard for investors to identify hidden costs. Make sure you understand the fee structure before investing with a broker.
Check whether the broker is covered by the Federal Deposit Insurance Corporation (FDIC)
You should make sure your broker’s certificates of deposit, money market account, and savings accounts are covered by FDIC. Dealing with a broker who is not covered is putting all your investments in a great risk.
Given that there is that risk of losing your investments, there are some brokers that provide additional protection to their clients. For instance, some of the brokers that follow the Customer Protection Rule ensure their minimum cash reserves can cover the amount owed to customers. Dealing with such brokers can enhance your success.
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