This is not investment advice. The information provided is for educational and informational purposes only and does not constitute a recommendation to buy or sell any financial product.
Choosing a brokerage is one of the most important decisions a stock trader makes. The brokerage is the trader's gateway to the market, and the brokerage is the custodian of the trader's funds. The wrong brokerage can cost the trader in fees, in execution, and in service. The right brokerage can save the trader time and money, and the right brokerage can support the trader's growth.
Define your priorities
The first step is to define the priorities. The trader should list the criteria that matter most, and the trader should rank the criteria. The most common criteria are regulation, cost, product range, platform, customer support, and account minimums. The trader who cares most about cost should pick a discount broker. The trader who cares most about service should pick a full-service broker.
The trader should also consider the trading style. The day trader needs a fast platform with advanced order types, and the day trader needs tight spreads. The long-term investor needs a low-cost platform with a wide product range, and the long-term investor does not need advanced order types. The trader should match the brokerage to the trading style.
The main criteria
The first criterion is the regulation. The brokerage should be regulated in a recognised jurisdiction, and the brokerage should keep the client funds in a segregated account. The trader should verify the licence, and the trader should read the brokerage's risk disclosure. The trader who cares about protection should pick a brokerage regulated by a tier-1 regulator.
The second criterion is the cost. The cost includes the commission, the spread, the platform fee, the inactivity fee, and the currency conversion fee. The trader should calculate the total cost for a representative trading pattern, and the trader should compare the total cost across three to five brokerages.
The third criterion is the product range. The brokerage should offer the products the trader wants to trade, and the brokerage should offer the markets the trader wants to access. The trader who wants US stocks should pick a brokerage with US market access, and the trader who wants international stocks should pick a brokerage with global market access.
The fourth criterion is the platform. The platform should be fast, reliable, and feature-rich. The trader should test the platform with a demo account, and the trader should check the order types, the charting, the data quality, and the execution speed. The platform is the trader's main tool, and the platform should match the trader's style.
The fifth criterion is the customer support. The brokerage should offer support by email, by chat, or by phone, and the support should be responsive. The trader should test the support before opening the account, and the trader should look for a brokerage with a strong support reputation.
The sixth criterion is the account minimum. Some brokerages require a minimum deposit, and some brokerages waive the minimum for certain account types. The trader should check the minimum, and the trader should pick a brokerage whose minimum matches the trader's budget.
A short process to shortlist brokers
The first step is to identify the must-have criteria. The trader should list the criteria that are non-negotiable, like the regulation or the product range. The must-have criteria are used to filter the list of brokerages.
The second step is to research the brokerages. The trader should read the brokerage's website, and the trader should check the regulator's website. The trader should also read the reviews on independent sites, and the trader should look for consistent complaints about the same issue.
The third step is to compare the cost. The trader should calculate the total cost for a representative trading pattern, and the trader should compare the total cost across the shortlisted brokerages. The total cost includes all the fees the trader is likely to pay.
The fourth step is to test the platform. The trader should open a demo account at each shortlisted brokerage, and the trader should test the platform with the trader's typical trading pattern. The trader should pay attention to the order types, the charting, the data quality, and the execution speed.
The fifth step is to open a small live account. The trader should open a small live account at the top one or two brokerages, and the trader should test the full workflow from funding to withdrawal. The trader should check the funding time, the withdrawal time, and the customer support responsiveness.
Common mistakes to avoid
The first mistake is to pick a brokerage based on a single criterion. The broker with the lowest commission may have a poor platform, and the broker with the best platform may have a high commission. The trader should look at all the criteria, and the trader should rank the criteria by personal priority.
The second mistake is to skip the demo account. The trader who opens a live account without testing the platform may be surprised by the platform's behaviour. The trader should test the platform with a demo account for at least two to four weeks before opening a live account.
The third mistake is to ignore the fine print. The brokerage's fee schedule is often in the small print, and the trader should read the fee schedule carefully. The trader should look for hidden fees, and the trader should compare the fee schedule across the shortlisted brokerages.
Common questions about choosing a brokerage
What is the most important criterion? The regulation is the most important criterion, because the regulation determines the level of protection. The trader should pick a brokerage regulated in a tier-1 jurisdiction, and the trader should verify the licence.
Should I use more than one brokerage? Many traders use two or three brokerages, with one brokerage for the main trading and a second brokerage for the products the main brokerage does not offer. The multi-brokerage setup provides flexibility, and the setup diversifies the counterparty risk.
How long does it take to choose a brokerage? The evaluation can take a few days to a few weeks, depending on the trader's experience and the trader's priorities. The trader should not rush the decision, and the trader should test the platform with a demo account before opening a live account.
Related resources
Where to start
If you are choosing a brokerage, the most useful first step is to rank the criteria by personal priority, and to shortlist three to five brokerages that match the top two criteria. Our broker comparison lists the brokerages by regulation, cost, product range, and platform, which together tell you what the brokerage offers before you open the account.