One of the primary requirements for investing in stocks is having a broking account. Many people think that there is no difference between one broker and the other. This is not true. Finding the right broker is not easy. The best approach is to make a list of facilities you want from your broker. Here are some pointers that you must consider. Consider the commissions and other fees that broking companies charge. But don't over-emphasise the point.
Also, understand the facilities offered. All brokerage houses have at least two plans. One is usually for intra-day traders and the other is more suitable for long-term investors. Check if there is a clause or subclause about minimum trades that you will have to do as well as the penalty for not complying with the requirement. In such a scenario, some banks have rules about minimum balance. Mutual funds and other investment options: If you'd like to buy and sell mutual funds through your brokerage account, look into the funds that the brokerage has tied up with and the services it offers.
If you want to invest in options, exchange-traded funds, or ETFs, or fixed deposits, ask whether the brokerage offers these products. The costs of these services must also be looked into. For example, discount brokers do not offer such facilities, but full-service brokers do. Some fullservice brokers may not offer products of all asset management companies or AMCs. Most full-service brokerages also offer research services. This allows investors to read analysts' reports on companies or sectors of interest or access data on companies.
See if you need these services, as these may help you take better decisions on buying and selling stocks and mutual funds. Look for customer reviews online or on specialised forums such as mouthshut. Some individuals prefer to visit the office to talk to a company executive. If you are one of them, check if the broking house has a local office.
Similarly, if you think you may want to place some orders in person or over the phone via an actual representative instead of a recording, see if it's possible. If it is, check the cost. But the online facility can be used anywhere. Full-service brokers provide a variety of services along with buying and selling of shares such as research and advice as well as retirement and tax planning. Among the full-service brokers there are bank subsidiaries that provide a 3-in-1 account, that is, a savings bank account, a demat account and an online trading facility.
Other full-service brokers provide all these facilities except a savings account. Discount brokers offer no-frill stock broking accounts. They only provide the necessary trading facility at the least possible cost. You can think of them as low-cost carriers.
Discount brokers are a recent trend in India. Investors' money is safe with them as well, for the simple reason that brokerage is highly regulated business. Discount brokers charge a much lower fee than fullservice brokers. Day traders invest for a few minutes to a few hours. They do not leave a position open overnight. Timely execution of trades is essential for these traders. Due to their peculiar investment style, it is imperative that data are accurate and delivered on a realtime basis.
Additionally it will help if the broker offers real-time market news. Since volumes are big for say traders, they would prefer a trading account with flat fee. For a retail day trader, all costs are important and can become very big-commissions, maintenance fees as well as other fees inactivity fee, fees for transferring money, etc. Investors usually buy a stock and keep it for a certain period.
That is why they do not need a topnotch order execution system. The facility to set trades in non-market hours is a big plus for such investors. The commission structure is not very important for such investors as they do very few trades.
However, they must check the maintenance fee for the account. Choosing the right broker is the first step towards having a successful investing career. Here are a few tips on how to zero in on the best. Picture for representation only Photo: Previous Story How to best use reward points on credit, debit cards.
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