5 Reasons to Switch to an Online Broker
The time of traditional brokers has passed and the rise of technology gives you the chance to start trading online. Naturally, we wouldn’t expect you to believe us unless we give you some strong reasons why changing your broker right away is such a smart idea. Read further and find out the top 5 reasons to switch to an online broker:
- Trading Offer. - Traditional brokers offer only a small selection of underlying, options cfd and etc. With online trading the possibilities are endless and far better than the ones your current broker can offer to you.
- Way of Working. - Regardless whether your traditional broker is a Market Maker, ECN or STP, they will probably trick you once or twice. In contrast, online brokers give you more freedom and tools to have control over the situation that can save you lots of money.
- Costs. - The costs of using your current broker are simply not worth it. Traditional brokerages usually include fees for accounts, commissions, spreads and rollover that are very often too high. This can be easily avoided with switching to an online broker
- Regulation. - Old fashioned brokers have no or not enough financial regulations and deposit insurance. Leading online brokers, on the other hand, are regulated by reputable authorities that make sure everything is done in favour of the traders.
- Support. - Support is probably the problem number one traditional brokers have. Insufficient reachability, competences or advises are several things that can ruin your trading experience. These things, however, are rarely an issue at online brokerages.
Step by Step to the Best Online Broker
This is our overview criteria for online broker comparison. Paying attention to the listed things will help you find a good online broker that meets both your expectations and your needs.
Regulation, Deposit Insurance
Obviously, not a single thing about an online brokerage matters unless that particular site is regulated and offers deposit insurance. Safety and security should always be a priority number one to traders, regardless whether their chosen site has lucrative bonus offers or incredibly small fees. Unapproved brokers can easily trick customers or offer something that is far from the realistic situation. Thus, sticking to regulated operators is a must. Recognising regulated trading sites is easy since they publish logos of the authorities that have approved them. Several reputable regulators are Financial Conduct Authority in the UK, National Futures Association, Commodity Futures Trading Commission, Australian Securities and Investment Commission and etc. In addition, you want to know that the money you have deposited is safe and insured. Therefore, join online trading sites that keep customer deposits separate from their operating funds. Additionally, top brokers publish their financial reports and use banks that are monitored by the Risk Committee of GAIN or other well established regulating bodies. Sometimes, in order to find this information about a certain trading operator you will have to search through the broker’s website or use a broker comparison table that provides these details. Nevertheless, never underestimate the importance of regulated online brokerages that take a good care of their customers’ money.
Markets and Trade Options
Understandably, after you are certain you have a list of reliable online trading platforms, you should pay attention to some other more specific things. The covered markets and trading options are two such things. In online trading you want to have a choice, you want freedom and as many options as possible. Therefore, it is advisable to join sites that cover several different markets. For example, there are online trading operators that only offer currency pairs or gold and silver trading. However, top brokerages offer many tradable securities such as stocks, options, futures, mutual funds, bonds, OTC markets and etc. Recognising good brokers is quite easy if you know how to spot a good offer. As was mentioned before, check what markets and trading options a particular online brokerage provides. If you can place trades on different markets and trade with various options, the chances are you have found yourself a good online trading platform. Naturally, a very good offer consists of several other things such as low commission fees, additional features, educative materials and etc. However, those things are further explained in the sections below.
Each online broker has its own offer that comes with particular fees for using the platform, making trades and etc. One of the most important fees is the commission for stock order. These can vary from $1 to $9.99. If you are a frequent trader stick to low commission sites because you might end up spending too much money on these fees. There is also commission for 10 options contracts and covered calls that usually are $4-30 and $1-25 respectively. Another tricky cost could be the maintenance fee which can be really anything from zero to $50. Nevertheless, the sites we recommend you to join are the ones that have $0 maintenance costs.
Leverage and margins are two concepts that every online trader has to understand before using them. Taking these two not seriously enough can cost you a lot and therefore you first have to know what they represent and how to use them properly. Leverage is the degree to which a trader is utilising borrowed money, while margin is the amount of money an investor must set aside in order to keep open positions. The latter is, in fact, a percentage of the total value of the contract. So, the question you probably have right now is why trading on margin using leverage. Well, the most obvious benefit is being able to open positions significantly larger than in fixed income markets. However, leverage is by many considered a double-edged sword since it can both increase your profit and magnify your losses. Therefore, in order to have some control over the outcome, it is not recommended to use more than 10 times effective leverage. In case there is a margin call issued and you do not meet it, online brokers have the right to sell your securities in order to increase your account equity until you go over the maintenance margin.
Top online brokerages offer one amazing feature to their customers – demo account. Even though at first this may seem like a silly idea, in fact, demo accounts are one of the things you should look for at online trading operators. Demo account is a practice account that allows you to learn how everything works for free before you start investing real money. Usually, traders that first got familiar with the software and the rules using a demo account show better trading results that people who just jumped directly to real money trading. Hence, stick to sites that offer demo account and check whether this account is restricted or fully usable.
There is no online trading without trading software. Thus, it comes as no surprise that the trading platform is one of the key factors of having a pleasant trading experience online. When choosing an online broker you have to check what platforms are available. For example, is the platform MT4 or Webtrader and can it be accessed via mobile devices. Also, if the software supports mobile devices, pay attention to what devices are supported. For instance, if you use an Android smartphone, then you need an Android friendly trading platform. Other software features you might want your online broker to offer is customisability, custom watchlists, advanced order types, price alerts, 1-click trading and etc.
Bonus Offers, Promotions, Cashback/Tradingpoints
Who doesn’t like receiving free cash and other valuable rewards for simply joining an online broker? The answer is no one. Therefore, learn to get advantage of online brokerages’ generosity by signing up with operators that have good bonus offers, attractive promotions and favourable bonus pilicy. Some online brokers offer commission-free earnings, others give you money and there are sites that will allow you to trade for free for a certain period of time. Which offer suits you the best depends on your needs. Additionally, pay attention to cashback and tradingpoints; both of these are a smart way of winning even when you’re losing.
Payment Options / Minimum Deposits / Minimum Positions
If you are not able to fund your trading account you won’t be able to claim bonuses or place trades either. Thus, if you are about to register with an online trading operator, you should first see what deposit methods are accepted. Most commonly, online brokers will allow you to fund your account via wire transfer, quick money transfer and cheque. Additional way of funding a new trading account is transferring an existing account. Furthermore, some brokers, depending on your location, may allow you to use your credit card in order to top up your trading account and start investing the very same day. In addition to choosing brokers that accept your preferred payment method, you should also beware of deposit limits. The minimum funding amount varies depending on the site’s policy, account type and etc. For example, opening a cash account may require you to deposit $1,000, whereas a margin account comes with a limit of $2,000. The minimum position also varies from $1 to $5 or more. If you are an inexperienced trader you might want operators that have low minimum deposit and minimum position amounts. This way you won’t be obliged to invest large sums of money before you are confident in your trading skills.
Being able to quickly and easily get in touch with a support agent is crucial for traders. Therefore, always stick to online brokers whose number one priority is their customers. Naturally, it is preferable to join broker sites that provide support team that works around the clock. However, if this is not provided, at least try to sign up with brokerages that provide assistance every day of the week. Several other important factors are the channels that can be used for getting in touch (phone, live chat, e-mail) as well as the competence of the agents.
Finally, the last but not the least important key factor that shows whether a particular online brokerage is serious and committed to its customers is additional offers. What can be considered to be an additional offer by an online trading operator? Well, education and training materials, consulting, trading signals, stock loan programs and etc. Even though additional offers rarely attract as much attention as the platform or the fees, they can significantly improve the overall experience a certain online brokerage offers. Education and training materials, for example, are very important for rookie traders who need all help they can get in order to learn how online trading works. The more extensive the education materials are the better. Consulting is another thing that can help traders make smarter trading decisions and get guidance when they need it the most. Therefore, trading operators which provide these two things send a message that they want you to succeed and this makes them stand out from the competition. What inexperienced traders also need are trading signals. These set-ups with detailed information about how to place and manage trades very often prove extremely helpful when newbies sign up and have no idea what to do next.