5 factors to look at while selecting a stockbroker

Make sure the pricing policies of the broker you choose is transparent and published on their website in detail.

Published: Jun 5, 2018
5 factors to look at while selecting a stockbroker Image: Shutterstock

Tejas Khoday

The sheer number of stockbrokers available in India can confuse new investors and traders. It is important for them to select the right brokerage if they want a seamless, hassle-free experience. There are various kinds of brokerage companies in our country and they can primarily be categorised into two distinct classes: traditional brokerages and discount brokerages.

There is a vast difference between the two. Traditional brokerages were established much earlier and focused on providing regular trading tips to their clientele. This business model is primarily based on the fact that most people require trading ideas which these brokerages provide.

Generally, traditional brokerages charge a percentage of the brokerage fee. This varies from client to client and depends on volumes and negotiations with the broker. It ranges between 0.3 percent and 0.5 percent of the transaction value.

On the other hand, discount brokerages are platforms which offer standardised execution services but don't offer trading tips like their traditional counterparts. Discount brokerages cater to the growing active trading/investing community in India which prefers to self-educate and take independent decisions. Moreover, they charge a flat fee of Rs 20 per transaction regardless of trade volumes which is a huge saving (about 95-98 percent) for traders and investors.

However, one should consider the below factors before selecting a particular brokerage house.

1. Expertise in technology: Any stockbroker which has an expertise in technology will be able to provide an edge to their customers. A broker who has an in-house technology team is better positioned to meet the evolving needs of traders and investors in the form of new platform features and solutions for the long-run. Since stockbroking-related technology is mission-critical and complex, one should choose a brokerage which has a great track record in providing a stable and reliable platform, apart from the bells and whistles.

2. Transparency: There are a number of ways in which a broker can charge clients. Hence, make sure that their pricing policies are transparent and published on their website in detail. This will help avoid unpleasant surprises in the future since many brokers have been known to levy hidden charges without prior disclosures. Also, ensure they have proper policies in other aspects of the business too. Good business practices matter the most!

3. Management team: As a trader or investor, one will benefit the most if the brokerage's management team has a strong passion for the stock markets and the requisite experience to be able to provide the most seamless experience. Ability of the management team largely influences all businesses, particular businesses like stockbroking. If the management has the vision to truly enable their customers to do well, then one would benefit from it in more ways than one.

4. Brokerage charges: Every rupee saved is a rupee earned. For savvy traders, lower the brokerage, higher the appeal. Low charges also indicate that a broker is focusing on scaling the business. But pay attention to other aspects as well. Lower charges are great, but at what cost? It's not cool to be penny-wise but pound foolish. Double check their offerings and track record before getting lured in by the attractive brokerage fee structure.

5. Increasing awareness and education: If you are new to investing, you may not have all the knowledge to begin with. Considering that the education system in India is really ignorant on financial markets, try to choose a broker that takes an active interest in increasing awareness among its clients. Market rules and regulations are dynamic and change from time to time. Brokers are at the core of this information and it would be really beneficial if they can effectively transmit their knowledge and information in an effective way. Such a broker would definitely be a boon to their client.

The writer is Co-Founder & CEO of FYERS

Original Source: https://www.moneycontrol.com/news/opinion/5-factors-to-look-at-while-selecting-a-stockbroker-2582527.html

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