How do I find the best broker?

When I first started trading stocks over a decade ago, I had no clue what I was doing and I had no goal. So, I started out with a broker that was recommended on online forums. Once I became financially literate, it turned out it was expensive in fees, had limited access to certain securities, and didn't have the functionalities I needed. It was easy to switch but expensive to move funds from one platform to the other. I still have stocks in my first brokerage account but don't actively use the account anymore.

In order to start trading stocks, you'll need to open a brokerage account. Since all countries have different brokers (According to Google Analytics my top readers come from around the globe: Denmark, USA, Norway, Germany, China and Australia) I’ll try to give some general information about what you need to be looking for when choosing a stock broker.

With a brokerage account you have access to buying and selling securities like stocks. Today it’s very common to have access to your broker through an online platform, where you can place your trades directly. Many brokers offer transfers via credit card or bank transfer. Some banks offer access to their own trading platform, and this might be the easy option to have all your products with the same bank but please do read this article before you go ahead with your bank, because many bank’s trading platforms are expensive in fees!

But the very first step is: you need to know your goal with the trading account. 

On this blog I’m focused on Value Investing, which is a long-term investing strategy, where we buy and hold stocks for a longer period of time – preferably 10 years or longer. We also aim to buy large portions of stocks at a time instead of several smaller purchases. Further, as an advanced value investor, you might want to sell options contracts, like I do.

But maybe you came across this blog and you have other investing strategies: day trader, momentum trader, forex speculator – maybe you only buy bonds, mutual funds or Exchange Traded Funds (ETF), commodities, futures, synthetic products like CFDs.

Regardless of wether you’re an investor, trader or speculator, you need to know your strategy before you choose your broker. Because you want to make sure your broker has the type of security you want to trade in and the best fees for your type of trading pattern.

How much money does it take to open a trading account?

Generally, you don’t need to put money into a broker account right away and in general you don’t need to put a lot of money into the account to get started executing trades (buy stocks). Make sure to check first. Some brokers will lover your fees if you put a certain amount into the account – often times it takes quite a large sum of money to reach that threshold and for most investors it’s absolutely fine to use the base product. On the brokerage firm's website you can read if you need to deposit money to open the account.

How do I open a trading account?

There are a lot of online brokers to choose from or potentially your bank offers access to a trading platform. The easiest  way to do a search online, read through the material on the website and call the customer services to answer additional questions. Make sure you check fees and go through my checklist at the bottom of this article before signing up. Once you’ve decided on a broker it usually takes a few minutes to get setup and usually you need a passport, drivers licence or other form of identification to get an account.

How do I know a broker is reliable and trustworthy?

Number one you want to ensure that the brokerage you sign up for is regulated by a governmental body. In a lot of countries brokerage firms are regulated by federal authorities and you definitely want to make sure that your brokerage firm is regulated in order to be handling trades from you as a non-professional investor. In the United States for example brokerages are regulated by the Securities and Exchange Commission and are members of a self-regulatory body, such as the Financial Industry Regulatory Authority. 

Second, you must ensure that the service is reliable. In 2008-09 we saw Investment Banks that would’ve been considered reliable went bankrupt - some were saved last minute by other banks. And in early 2021 during the GameStop frenzy some brokerages was forced to restrict trading of the stock. There were various reasons for this. For example, one broker didn’t have the capital needed to meet regulator’s requirements and guarantee their clients’ trades.

To find out if a broker is reliable you want to check the track record and do a search - maybe some of your Guru investors are recommending a certain platform. If it's a publicly traded company you can read the annual reports and though the valuation models in general doesn't work on banks - because their reports are different - you might want to check a few numbers from the report (like their debt and free cashflow).

Which stock broker is best for beginners?

For a beginner investor excellent customer service is key. You want to make sure that it’s possible to actually reach your broker in case you have last minute questions about a trade you've made or is about to make. For example, before you sign up for an account, you can do a test call or email to check if they respond to your request.

I’m very satisfied with my broker because they have excellent customer service and even have changed their platform and added some features based on some of my feedback.

Further, the usability of the online platform is key. It’s important that the platform is easy to use for a beginner. Many functionalities are great for later use, but if it’s possible to start with a minimum set of tools, and then add on later, you’re in the right place.

I like to use both the desktop site and a mobile app. For other’s this might not be a requirement.

Some platforms need to be downloaded to your computer while others are accessible through a website. What you need to think about is that there might not be enough free space on your computer for the downloaded version, so keep that in mind when signing up.

How much do brokers usually charge?

This might be the most important topic – however many will skip this section, and if you are feeling like skipping: Don’t! I’ve been in your shoes, and this is such an important topic, because you can save a lot of money by making the right decisions.

It’s highly unlikely that you can avoid fees. Even free platforms come with a cost and it’s probably more expensive for you to use the “free” platforms than using a flat fee structure.

First rule though: If there’s a fee you don’t understand you should reach out to their customer services and ask. I’ve had fees removed because I asked.

Individual stocks fees: The most common fee structure for brokers are commissions, which are charged when you buy and sell stocks, where you pay a flat fee per trade. You may also pay commissions or fees for buying and selling other securities, like options or exchange-traded funds.

In United States a majority of online brokers no longer charge a trade commission, but that doesn’t mean that the trade is free. You actually might end up paying more.

Instead of a flat fee, you pay for order flow, and this leads to higher buy prices and lower sell prices per share. As a value investor our goal is to load up the truck with shares when the market is low, so an order of many stocks where each stock is slightly more expensive than the asking price can be much more expensive for you than a commission/ flat fee.

Note: Often times when you trade on exchanges outside your home country (for example I’m in Denmark and often times invest in American Companies), you’ll be playing an extra commission fee for utilizing a foreign exchange + currency exchange fees and possibly a high exchange rate. I’ve setup a currency account where I trade in US Dollars to limit the currency exchange fees.

Brokerage fee: Though this generally is not very common some brokerages charge an annual fee to maintain the account. Included in this fee can be access to the trading platform, subscriptions for research or training, inactivity fees if you don’t use your account (not great for value investors who are very inactive and sit on our hands most of the time and buy stocks in bundles when the market is down)

The only way you can avoid brokerage account fees are by doing your due diligence and research the fees before choosing the right broker for you.

Checklist:

 I know which type(s) of securities I’m going to trade and how often I plan to trade

 The broker is reliable

 I can reach the broker's customer services

 The platform fulfils my needs in terms of user-friendliness and interface

 I have read and understood the fee structure