What broker should you use?

|2nd February 2015|

Love them or hate them, we all need at least one brokerage account if we are going to start trading or investing. But which one and what should you consider when choosing a broker? The recent SNB decision and the fallout surrounding broker losses has brought this question to the forefront for many retail traders. Whether you were directly affected or not, this is still a good time to consider if your broker is right for you.

The first question you must ask yourself is, what kind of trader are you? For example, how active are you? Are you a scalper, day trader or swing trader? What markets do you trade or indeed want to trade? FX, stocks, futures or maybe ETF’s? These two questions will allow you to filter out suitable brokers by looking at what products they offer as well as the commissions charged for trading each product. The more active you are the more in commissions you are likely to pay so it really will pay to shop around.

If you trade FX, take a close look at the spreads your broker offers, and dont be fooled by the headline markets they use in advertising. Many will offer very attractive spreads on popular markets like EURUSD and GBPUSD and usually some of the big indices like S&P500 and FTSE100 etc, but then offer much larger spreads on many of their remaining markets, so be sure compare the actual markets you trade and not just those advertised? Another point on spreads is if they are fixed or variable. If variable which is most likely, then the spreads advertised are typically their best rate during high volume trading hours, perfect if you’re a day trader but not if you’re a swing trader placing orders end of day. Having a 1 - 3 pip spread is of little importance to you then if it’s likely to increase to 10 pips during the night when you could be prematurely triggered in or stopped out of a trade, so take a good look at that.

Perhaps the most important aspect to consider at the moment is reputation. Some brokers have performed better that others during recent weeks so do some research and read the feedback from existing customers. From this research you will also see how they handle trades in general. I used a broker a few years ago who would regularly stop me out of positions that never actually traded at the stop loss price. After calling a complaining they would usually refund the position but that’s not how a trader/broker relationship should work so I ultimately closed that account.

It’s your money and you want it to be looked after, so take the time to decide who is best going to do that.  

By Ray Gilmour