12 Questions to Ask when Picking Your Broker

Meir Barak |

20_questions.JPGThe Importance of a Trustworthy Broker

It’s completely natural to be wary over depositing your money into the bank account of a broker you don’t know. That’s why, if you want to sleep better at night, make sure to check whether the broker you’ve chosen operates within the framework of regulations. This means your money, like that of others, is supervised, separated from the broker’s own ongoing activities, and insured. The insurance provided should not be that of the broker, but of a reliable, external organization. Clients of US brokers are meant to be insured by federal insurance up to a framework of $100,000 in their accounts, while clients of European Union brokers enjoy the automatic cover of the ICF (Investor Compensation Fund) for up to a €20,000 deposit. The ICF covers all of Europe and insures every deposit up to this figure in every European financial organization.

Broker Support: What You'll Get, and What You Won't

Imagine the US Federal Reserve Bank publicizes an important economic notice that creates financial turmoil. Traders, investors, institutions and market makers stream multiple orders into the stock exchange’s computers. The outcome: system failure and immense difficulty in getting orders executed. 

This situation shouldn’t bother you – unless you're a day trader holding a particular stock and your only interest is fleeing from it as early as possible. However, sometimes bad luck strikes: all systems are stuck and you need to call the broker’s client service. Due to the crash, you probably aren’t the only ones phoning your broker at that moment, which means you'll be spending long muzak filled minutes until your call is finally picked up. Sounds like a nightmare? Experienced traders know these, and similar scenarios, all too well.

While systems these days are highly reliable and such situations are rare, breakdowns can happen.  Remember that breakdowns and glitches are part and parcel of the life of a day trader. Try to choose a broker who will respond quickly for no more than the cost of a local call. That’s the kind of broker who can save you a lot of money, and help give you peace of mind.

To figure out if a particular broker offers a fair deal and services that are the right fit for your needs, ask the following questions:

             1.         Is the broker well-known and with long-term experience, operating according to the regulations?

             2.         Do the regulations under which the broker operates provide for insurance of your money?  If so, up to what amount is covered?

             3.         What is the minimum execution cost?

             4.         How much will you pay beyond the minimum?  (usually a fixed price per stock)

             5.         Does your broker allow you to deposit less than $25,000 and still allow you to day trade?

             6.         Does your broker allow you to trade on margin?

             7.         Does the broker collect a fixed monthly fee for providing a trading platform? If so, how much?

             8.         Does the broker collect a fixed monthly fee for providing information of any kind?

             9.         Does the broker’s trading platform allow you to observe real time charts?

             10.      Does the broker’s trading platform allow direct access to stock exchanges?

             11.       Is the broker’s trading platform a downloaded, installed, dedicated application, or is it only web-based?

             12.      Will your broker let you “paper trade,” as practicing on a demo platform is known?


Once you’ve found a broker of your liking, check his or her website to begin the process of opening your trading account. Once that’s completed, deposit your money, receive the trading platform, and make sure to learn all of its intricacies. It may sound like a lot of steps, but in the end, doing this leg work will ensure you’re getting the most value possible from the relationship with your broker!


To learn more about the stock market and to begin your own journey toward financial independence, visit Meir Barak's site Tradenet and check out his book "The Market Whisperer."  

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer


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