Tips for Choosing Best Stock Broker for Beginners
Choosing a broker is important irrespective of whether you intend to trade online
or offline. The broker is not only going to execute your transactions but also should
have the necessary technological skills to handle your online trades. Above all,
when you choose a broker, go by the pedigree but also go by the costs as they matter
a lot in the final analysis.
How to Choose a Broker?
Normally, brokers were chosen in the past based on only two considerations. It was
either a recommendation from a family friend or it was proximity to your residence
that mattered. Things have changed substantially in the last few years with the
advent of online broking in a big way. You now have to make a choice of the kind
of broker you want and the facilities that you would seek. You also have to choose
your broker on costs versus service. Finally, and perhaps, most importantly you
need to choose a broker based on the technological edge that they provide.
5 Steps to Choosing a Broker
Online versus offline broker
You have a choice of whether you want to go for an offline or online broker. In
an offline broker, you have to either visit the branch or call up your broker and
place orders. In case of online, you can place the orders online either from the
laptop or even from your mobile phones. You can select the option that suits your
trading preference best although in the interests of simplicity, speed and control,
online may serve you better.
Discount broker versus full service broker
The concept of discount brokers came up in the last 4-5 years although it has been
in existence in the US for a long time. In India, the likes of Zerodha, RSKV and
SAMCO are some of the top discount brokers. Discount brokers only offer you execution.
There is no research, no trading calls and no advisory support. If you are comfortable
with that approach then discount broking can suit you fine. If you are look for
research ideas, investment calls and advisory support then full service brokerages
may be your right choice.
Research support versus advisory support
Do you need research support from your broker? Quite a few traders prefer to be
self driven and do not depend on the broker for their calls. Even otherwise, the
advantage of a good broker is not just the calls and ideas but the market intelligence.
That is the support that you can only get from your broker and not from third party
research companies. Also advisory support is about what to do when you are stuck
in bad positions or in wrong trades.
Established brokers versus new brokers
There was a time when people would only go to established names in the broking industry.
Things have changed a lot with better and tighter regulation by the exchange and
by SEBI. This ensures that the broker has to follow clearly laid out processes and
procedures before servicing clients. Hence apart from the legacy and the pedigree,
there is not a big advantage that old brokers are left with. New brokers can be
equally good for your needs.
2-in-1 broker versus 3-in-1 broker
This is more applicable for online trading accounts where you have to map the account
to an online DP account and also to an online bank account. The 2-in-1 account maps
only the trading account and the demat account while the 3-in-1 account also maps
the bank account. The 3-in-1 facility can be only offered by brokers with a bank
in their group like ICICI, HDFC, Axis and Kotak. However, a 2-in-1 account is as
good as a 3-in-1 account if your broker can facilitate the smooth flow of funds
with a banking interface at no extra cost. That is good enough.
Be very clear on what the broker will not be able to do for you
This is quite tricky but traders and investors need to be clear of what the broker
will not provide them. This will help them to tone their expectations.
Broker does not assure you any profits
If you made losses stop blaming the broker. The broker may have given you a trading
idea but whether to take it or not and how to manage the risk is entirely in your
hands. Profits are yours and so are your losses. You really cannot believe that
the broker will help you make profits consistently. That is not going to work.
Broker is not a fund manager to beat the market
Don’t give too much credence to announcements about how many calls the broker’s
research team got right and how many they got wrong. Remember, the broker is not
a fund manager and his job is to ensure proper execution of your trades. Don’t read
too much into such reports.