How to choose the right broker
by brokrji · Published June 7, 2016 · Updated July 22, 2016
Choosing the right broker is much unlike picking a girlfriend, you would be lucky to pick the right one if not then well enjoy whatever life you have left.
In this guide, we will describe the things you should consider while choosing your broker. While choosing the right broker is a lesser priority in the grand scheme of things while trading/investing we at Brokerji believe that it is nonetheless important to get your choice of a broker right. Afterall brokers enable your trading and investing.
Step 1: Understand the distinction between a Traditional And Discount Broker.
A full service or a traditional broker provides other services along with core broking such as banking, research, advisory, relationship managers etc. But in our experience, most of this is just on paper and most often than not useless. And of course, you will be charged for this uselessness.
Discount brokers operate a lean model with the core focus on offering extremely low brokerage rates. They don’t offer other services such as relationship managers, research, advice PMS etc. They focus mainly on brokerage and tech.
Step 2: Brokerage is just one part of the equation, keep an eye on other charges such as transaction and turnover costs. We will be rolling out a feature to list out all the charges of a broker, but not all brokers charge these fee uniformly. Some brokers reduce the brokerage but hike these other charges. Go to the sites of the brokers whom you have shortlisted and compare their other charges.
Case in Point:
Discount brokers generally charge Rs.20 for call and trade and they mention this charge upfront. But we have noticed that full-service brokers deceive customers by saying they offer it free, but in truth, most of the brokers offer only the first 20 calls for free and the subsequent calls are a charged. Ex- Kotak Securities. As the saying goes the devil is in the details.
Step 3: While researching a broker online reading the reviews can be a good thing but many of the review sites have stacked the decks with useless and deceptive reviews, so you would be wise to talk to customers who are or have used the services of a broker in the past. Chances are you will find many such people amongst your own circle. Nothing beats personal validation.
Step 4: The background of the broker matters. Verify the brokers certifications and offers carefully. All that glitters inst gold. There have been several instances of brokers going bust in the recent past. They set up a honey trap by luring customers in the guise of offering deceptively cheap costs, but in reality, these charges don’t make any economic and operational sense.
Step 5: You can learn a lot about a broker based on the number of complaints it has received over a period of time. SEBI regularly discloses the number of complaints and in the upcoming days, we will create a list on Brokerji to track the number of complaints in the upcoming days.
Step 6: Customer support is one of the most important parameters of while choosing a broker. Check with your brokers about how responsive they are (They will most likely lie out of their teeth), verify among people who have used that particular broker’s services, pretend to be a customer and drop them an email or better yet call their support during market hours to gauge the level of support.
Step 6: Keep an eye on any conditions like minimum balances, turnover commitments etc. While most brokers definitely have such conditions, not many disclose them upfront so make sure you question them thoroughly before opening an account. We would not advise you to choose a broker who places such conditions and restrictions.
Step 7: The common tendency among beginners is to choose a broker based solely on the pricing without verifying their product offerings. Ensure that the brokers have memberships for all major segments including mutual funds etc. While traditional brokers have IPO offering, discount brokers don’t but it is not a deal breaker because you can apply for an IPO from your internet banking portal or through your Demat by filling a form at the nearest brokers office.
Step 8: Don’t fall for freebies: Recently some brokers have started offering brokerage credits (Brokerage reversals) but in the long run, you will end up paying more because their brokerage would still be high.
Step 9: Don’t choose a broker for benefits you don’t need, We have seen many investors and traders choose brokers for reasons such as 3-in-1 accounts, GTC orders etc. Although important these are not the only features that should decide your choice of a broker. You can link any major bank to make instant fund transfers, GTC order has many risks. So we do not see the point in these features being the deciding factor.
If you are a regular trader always choose a discount broker as there is not point in choosing a traditional broker. You will end up losing your profits as charges and brokerage.
Step 10: Technology, tools, and platforms: One of the most important thing that people ignore while choosing a broker is failing to verify their technology and platforms. One simple example would be most traditional brokers offer only up to 30 days of intraday charts while Zerodha offers 365 days of intraday data.
Even if you won’t be using a broker’s charting or other advanced tools, why not choose a broker who is offering a better option at a much lower cost structure. Generally, a large majority of traditional brokers do not offer a platform that satisfies the hardcore trader community, hence, there is no point in choosing them and then discovering the shortfalls.
A select few discount brokers have launched some amazing tools which are available along with some of the lowest brokerage structures.
http://brokrji.com/guides/how-to-choose-the-right-broker/