Picking a broker and picking a reliable trading platform like MetaTrader 5 is something that traders do seriously. There are two different types of brokers – the regular brokers and the broker-resellers who are intermediaries of a much larger broker and the client.
Defining Regular Brokers and Broker Resellers
Since there are two types of brokers, it is just right to know about them and what they really do. Differentiating them will also mean that you can use the right one for you.
These brokers are mostly preferred over broker-dealers. Although that doesn’t mean that resellers are bad with their job, it is just that they need to be thoroughly checked before signing up with them. Regular trading brokers are members of an organization such as the Financial Industry Regulatory Authority (FINRA) as well as the Securities Investor Protection Corporation (SIPC).
Full Service vs. Discount Brokers
Brokers are further classified into two types –full-service brokers and discount brokers. Full-service brokers are the ones that provide individual recommendations and advice. However, their services don’t always come cheap but definitely worth every penny. They are the ones doing all the legwork for the sake of the investor. Discount brokers, on the other hand, allow you to make your own decisions but offer options and advice for a fee.
Most of the time, full-service brokers are recommended for budding investors because they can provide all the assistance that you need to become a better trader. The major drawback is the expensive fee that you will have to shoulder when hiring full-service brokers.
Costs and Fees For Hiring a Broker
If you are a new trader, there’s a huge chance that you are under a tight budget. You need to mind the trade execution fees but also have to consider other brokerage fees. When you know these fees, you get yourself prepared financially and you’ll make the most out of every penny you pay for hiring a broker.
A minimum balance is mostly required by brokers before opening a trading account with them. Most online brokers have the lowest minimums that range from $500 to $1,000. It is important to check the minimums first before opening an account so you won’t have issues later on.
For new investors, they might not like to open a margin account right after they open a trading account. However, after some time, you might consider opening a margin account. For margin accounts, mostly have a higher minimum balance that is required by most brokerage companies. It is also important to check the interest rate when trading on margin accounts.
There are brokers who will charge you a fee for every withdrawal you make. Others will not allow you to make withdrawals if you will go below minimum while others permit traders to write checks towards their account and most of these brokers need you to have a high minimum balance. Before choosing a broker, make sure that you understand their rules when it comes to withdrawing your funds and the fees that accompany every withdrawal. It is also important that the broker supports the trading platform that you want like MetaTrader 5.