How to choose a Stock broker?

by J Victor on May 11th, 2011

hi there,

In this post, i would like to talk about some tips on choosing a broker.

Stock Brokers are registered members of stock exchange. Nobody except the stock brokers can directly buy and sell shares in Stock Market. An investor must contact a stock broker to trade stocks.For availing the service, the broker charges a fee called brokerage. It is generally a percentage of the value traded.

India has two big stock exchanges (Bombay Stock Exchange – BSE and National Stock Exchange – NSE) and few small exchanges like the Cochin Stock exchange. Investor can trade stocks in any of the stock exchange in India .

The best and practical way to choose a broker is to get referrals. You can find out from other people about the broker they use and why they have selected them, it is better to choose someone whom you have heard good things about.

Here are a few more tips from my experience:-

THE BIGGEST MAY NOT BE THE RIGHT ONE.

Some brokers are more geared for frequent traders and professionals. There are others that are geared more for beginners.  For most novice investors, it is much better to go with beginner-friendly brokers. High professional stock brokers will have a long list of high flying investors. While they’ll be busy attending their high profile investors, you a may not get the personal attention and advice that a newbie needs.

Most of them, I’ve seen, select a broker who offers to charge fewer commissions on trade. But, that’s not the criteria by which you select a broker. A broker should understand your preferences, your likes, your dislikes, your favored asset classes, your risk profile and they should be capable of giving you personalized tips based on that information. A stockbroker has to work with your goals in mind. Now, this doesn’t mean that you should totally ignore the commission part. You should definitely negotiate. Commissions charged should be reasonable.

DOES YOUR BROKER COMPEL YOU TO BUY STOCKS?

Stockbrokers are service providers. They are in business to make you wealthy. Some stockbrokers feel that their business is to buy and sell stocks. For them, money making is just incidental. Whatever a stockbroker says to you, always remember you are the client. It is your money and you make the final decisions. If you feel uncomfortable about any investment proposition, tell your broker and they will respect your decision. If they go ahead and go against you, or compel you to buy shares of their choice, then you definitely have the wrong stockbroker.

TEST YOUR BROKERS KNOWLEDGE

Ask ‘market tips’ to any broker and he’ll immediately give a list of 5 or 6 ‘hot stocks’. Whenever you get such tips ask yourself – “Why is this tip worthy of my hard earned money? A good stockbroker will make decisions based on your profile and then choose a stock. They should be able to explain to you in simple terms why they think that stock is a good choice for you. A broker will have to explain what the fundamentals are, about its market capitalization and PE, about its valuation and future prospects, about the degree of risk and the profit potential. The broker’s product knowledge is critical.  If they cannot explain their actions, drop them.

BE WITH THE KING !

Check if the broker has any specialty or is a jack-of-all-trades. If a broker has special focus and strength and this agrees with your investment goals and aspiration, you will gain more working with him.

RESEARCH REPORTS

Some broking houses publish excellent research reports exclusively for its members.Ask your prospective broker to give copies of earlier research reports and see if the opinions expressed in those reports have some degree of accuracy. These research reports are useful guides to get useful insights.

Be sure to get opinion from investors about the quality of service that the broker provides.

thats some tips from my side..