Which Online Brokerage Should I Use?
We get a lot of questions as we take students through our course about which online discount brokerage they should use. Although we don’t have a bias one way or the other, we will certainly help you understand what you get from the various choices that are out there. The following are the most common things to consider when choosing an online broker. At the end of this article there is a link to the 12th annual online broker rankings.
Type of Investor
This is a good place to start. Since different online brokerages cater to different types of investors it is good to know if you are going to be an active investor, a day trader, a passive investor or someone who only makes a few decisions once a year within a specific type of investment. How you describe yourself will initially narrow down your choices based on your needs.
Probably the single most deliberated (and marketed) aspect of self-directed investing is the fees you will be paying. Although fees are not limited to the per transaction cost, these are the fees that are most visible. You know, the “trade for as low as $6.99″. Transactions fees are usually determined by things like account size and frequency of trading or in some combination. Other fees to consider are transfer in/out fees, monthly fees to have your account, administration fees, and one that typically gets overlooked, currency conversion fees.
This is a fairly subjective area. Most sites offer some tools and the extent to which you use them quite literally comes down to how useful these tools are to the way you invest. For example, it really doesn’t matter if they have great portfolio monitoring tools if you are an active short-term trader. Equally it doesn’t matter if you can analyze various mutual funds if you have no plans on purchasing those investments. Many sites offer planning tools to help you establish solid investing routines. If a live data feed is important, be prepared to pay extra as very few online brokerages provide the feed within their basic fee structure.
Although most account types can be self-directed (RSP, RIF, LIRA, RESP, TFSA, cash and margin as well as US dollar accounts) not all discount brokers offer all of these accounts. Determine which account types are applicable to you and then narrow down your search accordingly. For example, Interactive Brokers has a very low fee per trade cost but you cannot have a RSP or TFSA account with them.
Similar to tools, research may play an important part in your selection. Sites will offer a variety of research options and analyst opinions, news and commentary. Some will be very relevant and others you might never look at.
Range of Investments
As you can probably tell by now, they type of investor you are will play a role in each point I am making. The range of investments offered can be stocks, ETFs, bonds, options, mutual funds, fixed income investments, precious metals and new issues or IPOs.
Perhaps a very basic need but also one that might be overlooked when only focusing on fees is the account information you can obtain from your online brokerage. Think about the documentation available including end of year statements and transaction history. If you are cash trading and need to submit all of your records to your accountant are they presented in a manner that is easily exportable or do you have to manually transcribe all of your data into a spreadsheet to calculate gains/losses per company traded? What about views of your accounts online and how the information is displayed. It is well worth spending a bit of time asking questions about these items.
Checks and Balances
Something that you will find on most bank related sites but potentially not on others is the “are you sure you want to do this” question. Some traders are irritated if they always have to enter their PIN code to perform a trade or answer “Yes” before a trade can happen. Also confirming the information on a trade can be tedious for some. On the other hand for others it is a saviour in disguise. After all if you wanted to by BNS and you mistakingly entered BSN you may not want the outcome if there isn’t a check in place. More active traders tend to not want these checks in place because it slows down the transaction speed of entry. In most cases, it isn’t going to make a huge difference if you have to take the time to answer a question if that will save you the embarrassment of executing on wrong information.
The features I am talking about here are all relevant to the trade itself. Do you want to be able to enter trailing stops, bracket orders, trigger points, etc.? Limit orders or market orders? All or nothing trade instructions? If you don’t understand these, you may want to do a little bit of reading to learn which might be important to you. Most online brokerages give the typical investor all the transaction features they need.
Let’s face it, since this is an online brokerage, you will be doing all of your transactions online. Being comfortable with the website is extremely important. If a site takes 4 screens and 15 mouse clicks to get to where you want to go, it may become very irritating after awhile. How the information is displayed about your account, your trading screen, your open transactions, your history and the method of switching between those areas might well make a difference between one brokerage and another. And don’t forget about mobile investing. With the huge increase in smartphones over the past few years, most institutions have not caught up with the change in technology. If you want to access your account information on your Blackberry or iPhone or Android device, you may want to find out if your online brokerage has a mobile application and make sure that if they do, you check out the security involved. I do many a transaction from my phone and love the fact that I can execute a trade that way.
So there you have it. Lots to think about. One thing you may want to check out is the 12th Annual Online Broker Rankings, an article posted in the Globe & Mail last November (Online Broker Rankings) From there you can drill down into the detailed scoring. The scoring also includes user opinion so it can be useful. But still do you own homework and if you have any questions, just email us back.
This entry was posted on Tuesday, October 25th, 2011 at 2:04 am and is filed under Investment Training, Investment Training FAQ's, Self Directed Investing . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.