Or perhaps, I should rename this article “5 Things You Wish You Knew When You Chose Your Brokerage Account”.
Is it just me, or do you also hear such questions/comments?
- “How come your commissions are so cheap?! Mine is $X per trade!”
- “Do you know what this means (referring to Y function/ Z figure in their trading app)”?
- “Wait you mean I can’t trade A market / B vehicle on my account?”
Based on my social circles, I have also observed that the first comment tends to come from an older age group, and the second from a younger group.
In the first case, I would attribute this to a lack of access. Either to information, or to opening the desired brokerage account at the time.
In the latter case, all research concerning fees have been done but alas… They jump into the brokerage account, only to find questionable functions and numbers. Which give a nagging feeling that one should understand how these work before unwittingly causing any trouble.
Let’s face it: Brokerage accounts are not made equal.
It’s not a matter of choosing any one because they are all similar. Certainly, each has got their own pros and cons.
The more important point is, it has got to serve your needs.
In part 1 of this Beginner’s Guide series, we established that our financial journeys are personal and unique to us. Simply put, your friend’s choice of brokerage account may not suit your goals and your style.
If you’ve already got an idea of what you want in a brokerage account, head on to this Seedly article for a comprehensive comparison. It should help you arrive at a decision quickly.
But if you don’t have a clear picture yet, this article is exactly for you.
1. Which market(s) do you plan to trade / invest in?
As I was saying, brokerage accounts are not equal.
No doubt that fees are often at the top of any trader/investor’s mind. However, knowing which market it is that you wish to partake in should, in my opinion, be of foremost consideration.
The typical choices would be the US, Hong Kong, as well as the local market (Singapore).
Not all brokerage accounts will provide you access to all 3 markets.
Of course, if you decide that you are only going to partake in, say, the US market, then that is already 1 filter in your search for the ideal brokerage account.
On the other hand, if your plan is to invest and collect dividend payouts from Singapore stocks, then you would be looking for a different kind of brokerage account from someone who is looking to trade the US market.
It could also be the case that you’re planning to partake in all 3 markets. Or perhaps, looking for opportunities in other overseas markets as well. Then, you need to ensure that your prospective brokerage account will be able to give you that access.
2. Does it have the vehicles that I want to utilize?
I’ve covered an overview of the vehicles available earlier in part 2 of this series, but that is by no means the full list.
Here, I would like to bring your attention to 2 additional vehicles that are commonly utilized by traders – Options, and Contract for Differences (CFDs).
Essentially, both are derivatives. In the context of trading the stock market, the underlying asset would be the individual stock/ETF. In trading either options or CFDs, you do not actually hold the stock. Instead, you trade the contracts (that are based on the underlying stock/ETF) to generate returns.
Both are also leverage tools which, if well-utilized, could significantly boost your returns. However, as with all financial instruments, do understand the risks involved. Money management becomes even more crucial as you need to know how to protect your downside. Unbeknownst to many, utilizing options could actually aid you with reducing your risks compared to trading stocks.
So when it comes to your choice of brokerage account, while stocks would naturally be available… Not all brokerage accounts allow you to trade options or CFDs.
If you are looking to potentially accelerate your trading game, I highly encourage you to learn how to utilize such leverage tools. While it can get confusing and overwhelming at the beginning, nothing worthwhile is ever easy, right?
3. What are the fees like?
Commission ($ or %), wiring fees, holding fees, minimum funding, conversion rate…
The list goes on.
Again, depending on the brokerage account, there is typically a combination of fees involved.
Thankfully for us, nowadays there are ready comparisons done up just like this one by MoneySmart.
Some points of consideration when thinking about fees, would be the frequency of your orders. For instance – are you looking to invest or trade? Would you be looking to execute orders on a daily / weekly / monthly basis?
If the commission is charged based on a percentage instead of a dollar value, for comparison sakes, it would help for you to do up rough calculations as well. Having a sense of how often you would place orders would allow you to make more informed decisions on the best fees for your style of trading/investing.
Don’t forget as well – if you are looking to trade options or CFDs, make sure that you are comparing the rates for those, and not just for stocks.
4. Am I able to navigate the platform interface?
The truth is, when it came to opening my own brokerage account, I had proudly done my research on the above 3 points. I had filled in the account application, downloaded the app and was raring to go… Until I finally stumbled at this part.
I wasn’t able to navigate the platform’s interface.
Despite watching numerous YouTube tutorials and attempting trades in the paper money mode (I had not funded the account yet), it was ultimately the lack of confidence to execute my desired options trade which crushed me.
Ease of navigation of the platform interface matters. Besides that, you could also consider these 2 additional factors: (1) technical indicators, and (2) mobile app interface.
If you would like to have technical indicators in your brokerage platform to help time your entries, it would help to check that the indicators which you have in mind are indeed available. And that you’re able to navigate the way to add them into your stock chart.
Trading via mobile apps seems increasingly commonplace as well. If this convenience suits you, it might be worth checking out if the mobile app’s interface is your cup of tea.
5. How long does it take for my account opening application to be processed?
Last but not least, bear it mind that it might take some time for your application to be processed.
The longest time that I have heard for a popular brokerage firm to process an account opening application, is 3-4 months.
On the other hand, I have also heard of some which are able to open almost immediately.
Alternatively, there is another combination which some of my friends undertake. While awaiting updates on the application status for the popular firm, they start trading with another account with quicker opening in the meantime. This could also work for you, especially if there are different markets/vehicles involved anyway.
On that note, the support from the customer service team would also matter. Whether it is to check in on your application status, or some queries regarding the platform interface, or more crucial questions regarding your monies, it is important to receive a timely response.
In fact, an earlier advice that I had received in deciding on my brokerage account, was to ensure that there was a local office here in Singapore. Supposedly “in case of anything”, we could rely on physical access to a local office to have our issues resolved, or have the authorities step in if it came to that.
Thus far email correspondence had worked for me, so I never had to think about other methods. But I guess, it doesn’t hurt to have an extra safety net of sorts.
As you apply these considerations and start to narrow down your options, you should arrive at a good selection of brokerage account providers.
Nowadays, there are some deal sweeteners as well. These come in the form of promotions, which gift you with shares of popular stocks when you open and fund your account with the brokerage firm. The terms and conditions vary from promotion to promotion, but this could be the incentive you need to start.
Speaking of promotions – if it sounds too good to be true, it probably is.
Please stay vigilant to not fall prey to shams and scams!
Conduct your due diligence and ensure that these are legitimate providers with a history behind them. Ask around if you’re in doubt – if you could use a community’s support, come join us here.
After all, the last thing you want when beginning your trading or investing journey, is to lose your funds even before you could attempt to grow it.
Remember that ultimately, your choice of brokerage account should suit your needs. If you’re still unsure and yet to have it figured out, go with the one you feel most confident about, and work it out from there.
A little more research doesn’t hurt, and getting into the habit of doing your own due diligence is nothing short of good practice.
Can anybody start trading and investing on their own? If you’ve read up to this point, the answer is a resounding yes. Stay tuned to the next parts of the series as we adopt a systematic approach in generating a step-by-step beginner’s guide.
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