You can’t trade the markets without a brokerage account. But choosing the wrong broker could cost you. With so many choices available, which broker is right for you?

One-size doesn’t fit all when it comes to online brokers. You’ll need to evaluate your personal trading goals and needs in comparison with the tools and offerings brokers may provide. Here are some factors to consider.

What type of account will you need?

Typically, all brokers offer individual taxable accounts. Some brokers do not offer retirement accounts such as traditional or Roth IRAs.

What do you want to trade?

  • Stocks
  • Bonds
  • Options
  • Currencies
  • Futures
  • Crypto

There is a good chance you plan to diversify, and that’s okay. But make sure the broker you choose will support the types of trades you plan to focus on, and provide access to the markets you need.

How active will you trade?

  • Investor (non-active)
  • Active Investor
  • Active Trader (day-trader, swing-trader)

The higher the volume of trades, the more concerned you should be about commissions.

Commission-free trading, what you should know.

Many online brokers now offer commission-free trading. You can trade for free! Or so it seems, but any logical person will wonder: what’s the catch? If a brokerage doesn’t charge commission, how do they make money? Check the fine print and disclosures, and you’ll likely find a commission-fee broker uses one or more methods of profiting:

  • Margin lending
  • Monthly fees for upgraded services
  • Rehypothecation – when a broker uses client securities from a margin account as collateral for their own purposes
  • Payment for order flow – perhaps the most common method – you pay a slightly higher buy price or marginally lower sell price, the broker in-turn profits on those slight differences from market prices

High-volume traders should be cautious about commission-free trading. Funding with rehypothecation can increase risk and even result in disaster during times of financial stress on the markets. Payment for order flow may lower order execution quality. Seemingly marginal price differences can add up fast. Serious traders may save more money with a premium account that offers superior order execution.

How much money will you be using?

While many online brokers have very low account minimums, premium brokers for sophisticated traders typically have minimum funding requirements.

How reliable is the platform?

Some broker trading platforms may not perform as well as others, especially during market stress like extreme volatility. If you expect to be an active trader, you may want to research a potential broker’s outage history and performance.

What tools and support do you need?

If you’re new to trading, you’ll likely want access to more educational tools and support. A more experienced trader may be interested in tools for charting, analysis, and research. When it comes to customer support, some budget online brokers have a reputation of being less-than-responsive. Consider your needs and find a broker that will provide the tools and level of customer support you need.

Are you comfortable with the trading platform?

It’s important you can navigate the broker’s trading platform since this is your critical bridge to the markets. Many brokers allow you to test drive their platform (either online or downloadable), before funding your account. Spend time getting comfortable with a prospective broker platform before you make a commitment.

Will the broker support your tax reporting needs?

Tax reporting is all too often an afterthought. But come tax time, you’ll be happy you have a broker that does more than just send the required 1099-B. Educated traders know they’ll likely need more than the 1099-B. Leading applications like TradeLog import broker-provided trade history in order to generate IRS-ready tax reports. A few brokers make it difficult, or even impossible, to obtain your own trade history – this should be a red-flag of concern. Click here to view TradeLog supported brokers and clearing firms.

With lots of brokers to choose from, there should be one that fits your needs. Do your homework and read the fine print. Check out our Traders Marketplace to start your search today!