An Investment Broker Needs to Support You and Your Unique Investing Needs

Selecting an investment broker is another important decision you must make and will influence which investing techniques, investment types, and overall investing strategies you can use.

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.

What is an Investment Broker?

Trading on the different markets and exchanges can only occur between "members".

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.

How to Select an Investment Broker

Each firm has a unique set of terms and conditions, which will affect your trades and investments.

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:

  • What is the minimum balance required to open an account?
  • When can I get help (24/7 or specific times during the day)?
  • How can I speak to someone about issues (online, by phone, by email, via instant messaging, etc.)?
  • Where is your nearest "physical" location?
  • What kind of research reports/tools do you offer?
  • Do you have different levels of service based on how much I trade or ?
  • Do you offer "no transaction fee" (NTF) mutual funds?
  • Do I have to hold investments for a certain amount of time before I can sell?

Types of Investment Brokers

I categorize trading accounts into 4 groups. Most of the time, each group answers the questions above in a similar way. But as these companies compete for new customers (you and me), the lines between them start to get really blurry.

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).

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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.

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