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.
Researching a broker before opening an account is one of the highest-return activities a new trader can do. A few hours of research can prevent the loss of the entire deposit, and a few hours of research can save the trader from a broker with poor execution, hidden fees, or weak customer support. The research does not need to be exhaustive, and the research can be done in a few days.
Why the research matters
The first reason is the safety of the funds. The broker holds the trader's money, and the trader should know whether the broker is regulated, whether the broker segregates the client funds, and whether the broker is covered by an investor compensation scheme. The trader who skips the research may end up with a broker that is not regulated, and the trader may lose the entire deposit if the broker goes bankrupt.
The second reason is the cost. The broker's fee schedule can eat into the trader's returns, and the fee schedule is often hidden in the small print. The trader who reads the fee schedule can avoid the brokers with high inactivity fees, high withdrawal fees, or high currency conversion fees. The trader who does not read the fee schedule may be surprised by a fee on the first withdrawal.
The third reason is the platform. The trader who uses the platform every day should test the platform with a demo account. The platform may have a steep learning curve, the platform may be slow, or the platform may lack the order types the trader needs. The trader who tests the platform before opening a live account can avoid a costly switch.
Where to find the information
The first source is the broker's website. The broker publishes the regulation, the fee schedule, the product range, and the platform description. The trader should read the website carefully, and the trader should pay attention to the small print and the disclaimers. The trader should also check the date of the page, because the broker may have updated the offer.
The second source is the regulator's website. The regulator publishes the list of authorised brokers, and the regulator publishes the enforcement actions against brokers. The trader should verify the broker's licence, and the trader should check the regulator's record for the broker. The trader who sees a long list of enforcement actions should look for another broker.
The third source is the comparison websites. The websites list the brokers side by side, and the websites include the fees, the platforms, the products, and the customer reviews. The trader should use the comparison websites to shortlist the brokers, and the trader should not rely on a single website. The trader should also check the date of the comparison, because the broker's offer may have changed.
The fourth source is the trader community. Forums, social media, and review sites are useful for finding the broker's reputation. The trader should look for consistent complaints about the same issue, and the trader should not rely on a single review. The trader should also look for the broker's response to the complaints, and the broker's response is a sign of the customer service.
What to check
The first item 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 fee schedule. The trader should compare 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 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, and the trader should check 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 questions about broker research
How long does the research take? A thorough research can take a few days to a few weeks, depending on the trader's experience. The trader should not rush the decision, and the trader should test the platform with a demo account before opening a live account.
Where do I find the broker's enforcement record? The regulator's website is the best source. The regulator publishes the list of authorised brokers, and the regulator publishes the enforcement actions. The trader can also check the regulator's press releases.
Is a comparison website enough? A comparison website is a starting point, and the comparison website is not a substitute for the trader's own research. The trader should verify the information on the broker's website and the regulator's website.
Related resources
Where to start
If you are researching stock brokers, the most useful first step is to shortlist three to five brokers that match the trader's priorities, and to verify the licence and the fee schedule for each broker. 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.