By G.R. Krahmer
Choosing the right broker is very important. The differences between them are large. Each broker charges different rates and has a different offer. Therefore, choose a broker that suits your investment strategy and make sure you don’t too many pays.
It seems contradictory, but in order to choose the right broker, it is useful to start with which strategy you are going to apply. This is because you want to base your strategy on your personal goals and life circumstances.
____________________________________________________________________________
1. Think about your strategy
As a rule, there are two different ways of investing. Some investors are in it for the long term and take little risk. They then trade few products and, for example, invest a fixed amount every month in a handful of funds or ETFs.
Other investors want exactly that in short achieve high returns in time. This is obviously associated with a higher risk. These types of investors such as day traders and other active strategies are many more products and often choose them to other investment products with higher costs and risks, such as speculative Short ETFs or leveraged products.
Every type of investor therefore benefits from a different broker. For example, the passive investor wants to be able to buy ETFs for as long as possible to hold, at the lowest possible costs.
While the active investor may have a greater need for derivative products without transaction costs, but with a higher custody fee. He will carry out many transactions and hold investments for a shorter period of time.
2. What amount are you going to invest?
It may happen that you can only make a small amount each month, such as €50. This would mean that you cannot buy in some ETFs every month because the price of the ETF exceeds €50. Fortunately, some brokers offer the option to buy ETFs in fractions. If you invest a much larger amount, buying fractions is a lot less relevant.
3. Pay attention to the product offering
There isn’t one unequivocal to answer what the best broker is. This can be different for everyone, depending on supply, convenience and costs. Some people want The best broker is different for everyone. It largely depends on how you invest. For example, do you want to trade in shares, commodities or leveraged products? Then it is important that your broker offers those products.
No broker has this all investment products and all international fairs. So, first think about which products you are going to invest in. And during your comparison, check which brokers offer those products.
4. Note the total annual costs
Due to the arrival of online brokers, rates have generally fallen considerably. Yet every broker has different costs. So it doesn’t hurt to compare the costs of brokers. Especially now that you know how much impact it can have on is long-term returns.
You will see that brokers or banks charge ‘transparent‘ show, but that in reality the total costs are often higher than they appear at first glance.
5. How do I know what I pay for the broker?
No broker is completely free, and it is still possible to be a fuss about one to get a good indication of the total annual costs. Some brokers do not charge transaction costs: they use a spread. That is a small difference in the buying and selling price. That difference in price is the profit for the broker.
When investing, it is not just the costs that are directly charged to the investment firm are important (the so-called ‘direct’ costs). Also, the costs (or so-called ‘indirect costs‘) that you pay when investing in a specific investment product, such as an investment fund, ultimately determine the net return of your investment portfolio.
‘A TCO therefore includes both direct and all indirect costs.’
An ‘expected‘ TCO gives you as an investor an estimate of the costs you can expect on an annual basis. The variable costs, such as transaction costs, are determined on the basis of a historical average. Although the variable costs may differ in reality, this gives a good indication.
Below you see a table lasting most broker costs are in the left column. At Binck you currently pay 0.18% per year on your entire assets. In the figure below, you can see the costs for periodic investing with two providers.
Once you have an overview of your broker’s costs brought, you can add the total average costs of your portfolio. You then arrive at a certain percentage. In my case, I pay 0.15% per year on my portfolio and about 0.20% per year to the broker. This therefore ensures an expected TCO of + – 0.35% per year.
NB!
Proceeds from Securities Lending
Some banks or brokers have additional income that reduces costs. This concerns ‘securities lending’: the broker lends securities (for example shares or bonds) to a third party who, in return, provides collateral to the fund provider and pays a lending fee. This fee reduces the costs for the fund. This can be an additional risk for the investor.
6. Also rely on your feelings / Ease of use
Choosing a broker is also something you do based on feeling. It must suit you and your strategy. What do you think is important as an investor? Do you want the transactions to take effect automatically every month without you having to look at them or do you not mind if you have to log in more often to save some costs? There is no point in saving 0.05% on costs per year if that is a lot of extra effort. Almost all brokers also have a mobile app so that you can enter or view everything from your phone. All kinds of factors can play a role in your choice.
Choose an online broker
Opening an account is free with most brokers. It may therefore be smart to simply try opening multiple accounts.
Try it first?
Those who do not want to deposit money immediately with different brokers can also choose to open a demo account first. You can then try all the functionalities of the trading platform with a fictitious asset. The price data is real, the product offering is real, only the money is fake.
Make grateful use of that. A practice account is an ideal way to try out a broker without risk. If the broker doesn’t suit you, you can always open an account elsewhere.
It is therefore important that there is a click between you and your broker. That the platform feels good, and you can easily carry out transactions. You must be able to fully rely on your broker and invest there with peace of mind.
