Exchange trading – is the process of buying and selling securities, currency, goods and other financial instruments on specialized platforms – exchanges. For, to have access to stock trading, you must have an account with an intermediary – aGENT, which provides services for executing transactions on the exchange on behalf of its clients. Choosing a broker for stock trading – this is an important and responsible step, which can significantly affect the results and quality of trading. Not all of them are the same in terms of their conditions, technologies, reliability and reputation. therefore, before opening an account with a broker, it is necessary to carefully study its characteristics and compare with other options. In this article, we will talk about, what factors need to be considered when choosing a broker for stock trading, and what types of brokers exist on the market. We also recommend studying list of forex brokers where reliable and trusted companies are represented.
Factors for choosing a broker for stock trading
When choosing a broker for stock trading, you need to pay attention to the following factors:
- License and regulation. The broker must be licensed to provide brokerage services from the relevant regulator, which controls its activities and protects the interests of clients. for example, in Europe the regulator is the Securities and Markets Commission (CySEC), in USA – securities and exchange commission (SEC) etc. The license guarantees, that the broker complies with the law, norms and quality standards, and also ensures the security of client funds and data.
- Trade execution type. Brokers can use different types of execution of transactions on the exchange: market maker (market maker), electronic communication network (ECN), direct access to the market (DMA) etc. Each type has its own advantages and disadvantages, which affect speed, price and quality of execution of transactions. for example, market makers provide their quotes and execute trades from their own volume, which can lead to conflicts of interest with clients and unfavorable prices. ECN brokers aggregate quotes from different liquidity providers and route client transactions to the over-the-counter market, which ensures better prices and transparency.
- Commissions and spreads. Brokers charge commissions for their services in executing trades on the stock exchange. Commissions can be fixed or depend on the volume of the transaction, trading frequency, type of instrument, etc. Besides, brokers can set spreads – the difference between the purchase and sale prices of an instrument, which is their income. Commissions and spreads affect trading profitability, therefore you need to choose a broker with competitive and transparent conditions.
- Trading platform and tools. The broker must provide convenient, reliable and functional trading platform, which allows you to quickly and efficiently conduct transactions on the exchange. The trading platform must have different types of charts, indicators, orders, analytical and technical tools, as well as the possibility of customization and automation of trade. Besides, the broker must provide access to various financial instruments, such as shares, currencies, goods, indices, futures, options, etc..
- Education and support. The broker must provide educational materials and resources for its clients, which help them improve their knowledge and skills in the field of stock trading. for example, these could be articles, video, webinars, courses, books, seminars, etc.. Besides, it must provide quality support to its customers through various communication channels: phone, Email, chat, social networks, etc.. Support should be available 24/7 and in different languages.
Types of brokers for stock trading
There are different types of stock trading brokers in the market, which differ in their conditions, technologies and specialization. Here are some of them:
- ECN brokers: use an electronic communication network (ECN) for execution of transactions on the exchange. ECN – it's a system, which aggregates quotes from different liquidity providers (banks, other brokers, hedge funds, etc.) and directs client transactions to the over-the-counter market. ECN brokers provide the best prices and transparency of trade execution, as well as minimal spreads. However, they charge fees on every trade and require a larger deposit.. Examples of ECN brokers: Dukascopy, IC Markets, Pepperstone et al.
- STP brokers: use direct processing (STP) for execution of transactions on the exchange. STP – this is technology, which allows the broker to automatically route client trades to one or more liquidity providers without dealer intervention. STP brokers also offer better prices and faster execution of trades, but can add their own spreads to the quotes of liquidity providers. They may also charge fees for trades or for access to certain instruments. Examples of STP brokers: FXCM, FXTM, XM and others.
- Market makers: act as a counterparty for their clients’ transactions on the stock exchange. Provide their own quotes and execute trades from their volume, which is formed from transactions of other clients, hedging on other markets or own trading. Market makers ensure constant liquidity and trading availability, but can set high spreads and impose trading restrictions. Besides, they may have a conflict of interest with clients, because they make money from their losses. Examples of market makers: Alpari, Forex Club, InstaForex and others.
- Specialized brokers: focus on a specific type of instrument or market for stock trading. for example, it could be brokers, which offer only stock trading, futures, options or cryptocurrencies. Specialized brokers can provide the best conditions and tools for trading the chosen instrument or market, but may have a limited selection of other instruments or markets. Examples of specialized brokers: Interactive Brokers, E-Trade, Coinbase et al.
Conclusion
Choosing a broker for stock trading – this is a responsible decision, which requires studying different factors and types of brokers. You need to choose a broker according to your goals, strategy, style and level of trading, and also compare different options according to conditions, technologies, reliability and reputation. This is the only way to find a suitable partner for successful and safe exchange trading.
