Your broker is your gateway to the investing world, and can easily influence your decision-making.
There are times when your broker is selected for you, like your employer-sponsored retirement accounts. But most of the time, your responsible for doing your homework.
Think of it like going to Costco or Sam’s Club. You have to be a member (i.e. buy and renew a yearly membership) in order to shop at those stores.
Markets require a similar type of membership, and investment brokers are those members. When sign-on with a broker, you gain access to their memberships and they arrange and settle trades, provide you with information, research, assistance, etc.
In exchange, you pay commissions each time you trade.
For example, firms might place minimum balance requirements on their accounts, or have a limited number of investment choices. They may even put trade restrictions in place (particularly for retirement accounts). Also, you may not get access to markets or investment choices that are needed for you to meet your financial goals.
But the most important factor to consider when selecting an investment broker is commissions.
Find the broker with the lowest commission and you'll have a good idea what it costs for "access". Then compare the "extras" being offered by other firms.
To help you get started, here are some good questions related to the type of services your commissions will pay for:
The first three types are retail brokers; the kind that you and I use. They offer a wide range of tools, investment products, level of service, commissions, fees, minimum balances...even banking options.
In one sense, these firms are a lot like credit card companies; many different options, but it is up to you to read the fine print.
Institutional brokerages are market makers. They move millions of dollars into and out of the markets on a daily basis (think Duke and Duke from Trading Places).
Safe Investing Tip:
Pick a broker with a combination of low commissions (saves you money) and is easy for you to use (saves you time). You can find almost all the data/information you need for free, so don't pay for it through high commissions and/or complicated sites.