How to choose a stock broker?

The very first step to buy or sell stocks is to open an account with the stock broker. And regardless of whether you are a big or small investor, choosing the right stock broker is the key to save money.

As a customer, you should look at various factors before finalizing on a particular broker. Let’s look at those factors one by one.

For a comparison of various brokers, please click here!

How a stock broker can help you save money?

Brokerage

The rule is simple, less brokerage is better. But there are various types of plans available in the market. Let’s go through some of the most common plans.

  • Zero brokerage: There are some brokers who charge zero brokerage. But again there are many variations to this plan. For example:
    • Some brokers offer zero brokerage only for delivery transactions. (Zerodha, Upstox)
    • Others charge a fixed fee for using their trading platform. (Finvasia)

    So it is very important to go through the terms and conditions of the brokerage plan.

  • Fixed monthly brokerage: In this plan the broker charges a fixed monthly brokerage regardless of your turnover. It can help you save a lot of money if your turnover is big. And if you do not trade in a month; then ideally the broker should not charge you anything or refund your brokerage in case it was deducted in advanced. (MyValueTrade, Trade Smart Online, SAS Online)
  • Fixed amount per order traded: In this plan the broker charges a fixed amount per traded order. In India, most brokers charge flat 20/- per executed order.
  • Brokerage as a percentage of turnover: This is the most common plan that you will see most brokers offer. They will charge a small percentage of your turnover value as brokerage. It’s good for customers who do not trade a lot. (Zerodha, Upstox, Arihant Capital, Sharekhan, Trade Smart Online)

The key here is to approximate the number of orders & turnover you are going to make in a month. And then do your calculations to identify which type of plan suits you the best. For a list of brokers, it is best to use Google search.

Other charges

Some brokers charge annual maintenance charges, call & trade charges etc. Please ask the broker about, any other charges they might have apart from the brokerage.

Technology & Infrastructure

This area is very important for those actively trading the markets. If you have a losing position, and due to technical difficulties you are not able to square off your position; then you will end up losing a lot of money. So it is crucial to have a stable trading platform & backend infrastructure.

Normally reputed big brokers have stable platforms & infrastructure. Many brokers offer Omnesys NEST trading platform, which is a very stable front-end. So as long as a broker has reliable backend servers, trading with NEST is one good option. We would strongly advise you to do your research.

Why customer service matters?

Once we have looked the costs involved in trading, next important thing is the customer service.

Poor customer service brings a lot of frustration. And it is difficult to find information about quality of customer service, so what can you do? Here are some simple tricks you can try:

  • Search for reviews of broker. If you find some complaints, call their helpdesk and ask about it.
  • If you know any active trader, consider their opinion.
  • Try to judge based on broker’s customer care operator responses. See how much they know about markets and their own platforms. You can ask them various questions like:
    • How many trading platforms do they have?
    • When was the last time they suffered technical problems that affected their trading?
    • Are there any charges apart from brokerage?
    • What is their deadline about solving a customer issue?
    • How many branches do they have? Where is their head office?
    • How long have they been in the brokerage business?

Choosing right trading platform

Having a right platform can help you save time and money. We will discuss some of the problems that these trading platforms have, which will help you make a correct decision.

Problems with the trading platforms:

  • Slow and unresponsive user interface (slow to show live price and other data)
  • Stability issues (some platforms crash many times)
  • Lack of user friendliness
  • Lack of features: Quick square off

If you are an active trader, then we would advise you to avoid web based trading platforms and use desktop based trading platforms instead. If you need technical analysis, then make sure the platform has support for it.

There are many trading platforms which are common across brokers like (Omnesys NEST, NSE NOW, ODIN, Symphony Presto). We have used all of them except Presto, and we found NEST to be the best for our trading needs.

Another important point is that a broker must support multiple trading platforms. This is because if one of the platform fails, you can use others as backup.

Leverage/Margin

Margin based trading is done by intraday or derivatives traders. Example, if a broker gives 10x (10 times) margin (also called leverage), and you have 10,000/- in your account; then you can buy/sell stocks worth 10 times your cash (i.e. 1,00,000/-).

So the traders who make consistent profits, can increase the return on investment by using higher leverage. So it is always a good idea to prefer a broker who gives high leverage (Arihant Capital, Finvasia, MyValueTrade). It must be noted that this is for experienced traders, as high leverage means higher profits or higher losses.

Research Reports

Many brokers have their teams who perform advanced research about the market. They send their reports to clients, if you are someone who would use these reports; then look at the recommendations they have given in the past and try to asses their accuracy.

Conclusion

Less brokerage, better customer service, high leverage & robust trading platforms are the key factors to choose a stock broker.

Once you have opened an account with broker, keep a very close watch on their service. Regularly check ledger of your trading account for any discrepancies or hidden charges.If you are not happy for any reason, do remember that there are many brokers available in the market. Do not hesitate to switch your broker.

For a comparison of various brokers, please click here!

I have around 15 years of experience developing Financial Software. I took a break from my career to start my own algorithmic trading setup. This new journey started well and along with my own proprietary trading systems, I also started building automation systems for retail traders, fund managers and HNIs. I was employed with firms like Morgan Stanley, HSBC & SunGard. I work on various technologies, but my strengths are building server side cloud based algorithmic trading systems built primarily using Java programming language. Apart from all of this, I am a big fan of Formula 1 racing :-)

3 thoughts on “How to choose a stock broker?”
  • Manisha says:

    Good article for choosing a broker…

    March 7, 2018 at 2:45 am
  • Nagarjun says:

    Hi,

    We are from Alice Blue commodities pvt Ltd, company.

    We have NSE and BSE and MCX with us, Now we are providing a API and bridging software clients.

    We have a few clients like to use your products, so if we can make business deal ,both will enhance our products and support.
    So kindly reach me on 9677702457,i am not a sales guy.

    Operation head of Alice Blue

    December 21, 2018 at 10:18 am
    • Admin says:

      This is not a place to discuss such things, please send any proposal to our email address.

      December 21, 2018 at 3:33 pm
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