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 stock broker comes down to four dimensions: regulation, cost, product range, and platform. The right broker on one dimension may be the wrong broker on another, and the trader should rank the dimensions by personal priority before comparing brokers. 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 who cares most about platform features should pick a broker whose platform matches the trading style.
The four dimensions
The first dimension is the regulation. The broker should be regulated in a recognised jurisdiction, and the broker should keep the client funds in a segregated account. The trader should verify the licence, and the trader should read the broker's risk disclosure. The trader who cares about protection should pick a broker regulated by a tier-1 regulator like the FCA, the ASIC, or the SEC.
The second dimension 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 brokers.
The third dimension is the product range. The broker should offer the products the trader wants to trade, and the broker should offer the markets the trader wants to access. The trader who wants US stocks should pick a broker with US market access, and the trader who wants international stocks should pick a broker with global market access.
The fourth dimension 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.
A practical checklist
The first item on the checklist is the regulation. The trader should verify the licence, the regulator, and the segregation of funds. The trader should not open an account with an unregulated broker, and the trader should be cautious with brokers regulated in small jurisdictions.
The second item is the cost. The trader should compare the commission, the spread, the platform fee, and the inactivity fee. The trader should look for hidden fees, and the trader should read the broker's fee schedule carefully.
The third item is the product range. The trader should list the products the trader wants to trade, and the trader should check the broker's offering for each product. The trader should also check the leverage available on each product, because the leverage affects the margin requirements.
The fourth item is the platform. 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 trader should also check the mobile app, because the trader may need to trade on the go.
Common pitfalls
The first pitfall is to pick a broker based on a single dimension. 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 four dimensions, and the trader should rank the dimensions by personal priority.
The second pitfall is to ignore the regulation. The trader who picks an off-shore broker for the high leverage may lose the entire deposit if the broker goes bankrupt. The trader should weigh the higher leverage against the lower protection.
The third pitfall 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.
Common questions about choosing a broker
What is the most important dimension? The regulation is the most important dimension, because the regulation determines the level of protection. The trader should pick a broker regulated in a tier-1 jurisdiction, and the trader should verify the licence.
Should I use more than one broker? Many traders use two or three brokers, with one broker for the main trading and a second broker for the products the main broker does not offer. The multi-broker setup provides flexibility, and the setup diversifies the counterparty risk.
How long does it take to choose a broker? 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 stock broker, the most useful first step is to rank the four dimensions by personal priority, and to shortlist three to five brokers that match the top two dimensions. Our broker comparison lists the brokers by regulation, cost, product range, and platform, which together tell you what the broker offers before you open the account.