How to choose a broker to trade in the stock market?

Any novice investor is faced with the moment of choosing a broker. Many consider this to be an initial task, however, in my personal opinion, the opening of a brokerage account should be preceded by other steps, comments Sergey Briz, Director of the Training Center for Investments and Trading.

Before choosing a broker, take care of finding a suitable investment strategy, create an action plan for yourself, work out the system on a demo account, check the historical data and financial statements of companies. And only when all the preparation is done, open a brokerage account.

Trading on the exchange without a broker is not possible. A certified broker will become an intermediary between you and the exchange. He registers transactions, deals with the purchase and sale of securities on your behalf and their storage.

Now in our country more than five hundred organizations provide brokerage services, some of which are banks. Examine the offers carefully. The requirements for opening and maintaining a brokerage account are different for everyone.

1. Rating and work experience

There are many brokerage companies, but are all of them trustworthy? Read the rating, read reviews and select several suitable options. This is also important for a not very obvious reason. The fact is that in the Russian Federation brokers do not provide insurance coverage. If bank deposits are protected by the Deposit Insurance Agency, then money on a brokerage account may disappear along with bankruptcy, revocation of a license or other troubles.

Therefore, do not buy cheap offers, make a choice in favor of time-tested companies with a consistently good rating.

2. Entrance fee

A high entry level is becoming an obstacle to the start of the exchange for many private investors. People collect capital for these purposes, and then find that they will not open a brokerage account worth less than $ 500 (30 thousand rubles). Moreover, some companies require that this amount be a minimum balance..

If you are not financially ready, you have to wait. Ask how much you can open an account with a broker, and how much is inviolable. Perhaps at this stage the list of previously selected companies will be significantly narrowed..

3. Access to various sites

If you decide to trade or invest exclusively in the Russian market, then there will be no problems finding a suitable broker. But for those who glance towards foreign exchanges where there are more instruments and assets, it is imperative to understand that not every Russian company has access to foreign stock markets.

Accordingly, this will push you towards foreign brokerage firms. They have a major advantage – insurance coverage in the event of bankruptcy or license revocation. As already mentioned, Russian brokers do not provide such a service. Let the lack of English language skills not bother you – the largest have a multilingual support service.

4. Access to various tools

By exchange instruments, I mean a lot of securities (including shares of American companies). If your strategy includes ETFs or penny stock junk stocks, it’s worthwhile to make sure that the broker can buy and sell such assets on your behalf..

5. Ability to switch to another broker

The world is not perfect. It may not be possible to find a broker that meets all your requests. But this does not mean that you need to abandon the dream. You can open an account in a company with a suitable ratio of reliability and entry threshold, and then, by increasing your capital, transfer assets to another broker.

Sometimes, in the process of work, you realize that you did not take into account something important and this is inconvenient. For example, high commissions or the absence of a suitable way to replenish an account and withdraw funds are forced to switch to another company. It is better to clarify the availability of such an opportunity and conditions in advance..

6. Broker commissions

The broker is not working for free. The set and size of commissions is different. Be sure to pay attention to this. The commission itself in percentage may be small, but many brokers add a minimum commission for small transactions. For example, if with a purchase of 1 thousand rubles the minimum commission is 100 rubles, then this is 10% of the purchase amount. This is another reason why entering the stock market with small amounts is unprofitable.

Commissions are subject to:

• Purchase and sale of securities.
• Currency conversion.
• Withdraw money from the account.
• Custody service.
• Use of software.
• Monthly maintenance fee.

The largest is the broker’s commission for the purchase or sale of securities. This may be 0.5% of the cost or (from another company) 0.055%. This means that when you purchase 100 thousand rubles. in the first case, the broker needs to pay 500 p., and in the second 55 p. The difference is obvious and accordingly – this is one of the most important points that you need to pay attention to before choosing a broker. The less intermediary services cost, the more money you reserve.

Opening a brokerage account is no more difficult than opening a bank account. You can issue it remotely or at the company office. Address List for the city of Moscow.

After conducting a comparative analysis and the final choice in favor of a company, you will need to send an application. Next, conclude a service contract. I repeat that everything can happen both in person and online. Among my students, Finam, BCS, Tinkoff Investments and IT Invest are popular.

At IT Invest is one of the lowest commissions. It depends on cash flow and up to 1 million rubles per day is 0.035%. BCS tariffs also depend on turnover and investment objectives, you can see them here. We provide links for analysis of tariffs Finam (section “Brokerage services”) and Tinkoff Investments. 

See the list of other brokers leading in trading volume on the Moscow Exchange here.

For trading in the US market, all of the above are suitable. But personally, I prefer the American broker Interactive Brokers. It has been providing services in the stock market for more than 40 years, that is, more than there is a modern Russian exchange. With it, you can enter the markets of more than 120 countries. Shares of this company are traded on the NASDAQ with the ticker IBKR.

Interactive Brokers is notable for the following:

• It allows Russian citizens to work in the US stock market (which not every American broker does).
• It has low commissions, even lower than some Russian brokers.
• This is a real and official broker that works under US law..
• It provides a guarantee under SIPC (American Investor Insurance Act for up to $ 500,000).
• Russian-language technical support and convenient terminal.

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