Choosing a broker
What you will learn:
What the broker does.- What rates are offered by brokers and what you will have to pay for.
- What trading on the stock exchange looks like generally.
- What kind of securities are sold on which stock exchange.
What do brokers do?
The broker provides you with software to work with one or several stock exchanges, which allows you to buy and sell securities. At the same time, the broker monitors how much and what you have bought, calculates your profits and sometimes pays taxes on these profits for you (with exceptions).There are other functions a broker has, but these are the most important ones.
There’s no simple answer on who is the best broker. For one, there are way too many to compare directly here. But we can teach you what to look out for when choosing a broker.
Since you’re likely reading this on the Vivid app, we’re happy you chose us. We provide our services in cooperation with CM-Equity AG.
What to look out for
1. Reliability
This is the most important factor when choosing a broker. You want to make sure they’re regulated, and won’t go out of business suddenly, leaving you with no money.
The exchanges do a lot of work for you here. They list all accredited brokers, and sometimes give you more information on each of the brokers.
Keep in mind that a trading platform and a broker are not the same thing. A trading platform is the interface or piece of software you use to trade. The trading platform might have a brokerage license, or do its business with an established broker. In each case, do some research and make sure the broker that’s fulfilling your transactions has been around for a while.
2. Fees
There are generally two kinds of fees investors pay: a fee for each transaction and a fixed monthly fee.
The transaction fee is a percentage of the transaction amount, generally also called a commission. For example, let’s say a broker charges you 0.5% on each transaction. If you buy 100 euros worth of stocks or bonds, it’ll cost you 50 cents.
A fixed fee is exactly what it sounds: a set amount, usually for the privilege of having an active account. This can be monthly, but doesn’t have to be.
One broker may have multiple fees, a monthly fee plus a commission on each transaction. In order to figure out what’s best for you, consider how much you’ll be investing. If you’re investing large amounts, a commission is likely to be more expensive for you than a higher monthly fee. But if you’re only investing smaller amounts, you’ll likely be paying more for your subscription than in commissions.
Commissions don’t have to be on a per-trade basis. Some brokers charge commissions when you withdraw money, when you deposit money, or for a variety of other reasons. Check the fine print carefully, and figure out what you’ll be paying.
The good news is that most online brokers in recent years have moved away from commission fees for simple trades such as stocks and ETFs. Generally they make money either on converting currency for you, or on a monthly basis.
Make sure you understand what the broker is taking the money for. The lower the broker costs, the better. Any money you don’t pay to the broker is money in your pocket.
At Vivid, we don’t charge you commission on your investment, and there’s no monthly fee either. Our main fee is a 0.5% foreign currency exchange markup rate, when you convert your euros to U.S. dollars. For a full list of fees, you can click here.
3. How the broker gives you access to the stock exchange
The easiest option for getting access to the stock exchange is if your broker has their own piece of software or trading platform that you can use. Most online brokers do this. Sometimes, a broker may have several trading platforms. This happens if they offer their brokerage license to software companies that then run the trading platform for them.
If your broker doesn’t have their own software, you’ll need a trading terminal. The most popular products in the world are the Bloomberg Terminal and Refinitiv Eikon. The problem here is two-fold: neither has a user-friendly interface, especially for beginners. They’re also expensive. A Bloomberg Terminal is said to cost around $25,000 a year — the exact price is unknown as the company doesn’t publish prices.
We recommend finding a broker with a smartphone app to start. If you’re using Vivid, you’ve already completed all this and don’t need to worry about doing anything else.
4. Available Exchanges
Paying attention to what exchanges a broker has access to is important if you have your eye on certain stocks. Companies usually only list on one or a few exchanges. So if you want to trade that company’s stock, you need to make sure your broker can get you on that exchange.
These days, most online brokers offer most of the largest U.S. and European exchanges, so you’ll likely be able to trade all the big-name stocks. At Vivid, we’ve got over many of the biggest US and EU stocks, and our catalogue is constantly growing.
Alright, let’s see if you’ve been paying attention.
An Introduction to Bonds
An Introduction to Bonds
