We all have big aspirations and a lot of us dream of becoming investors like Warren Buffet (I am assuming this because I am one of such) so as to create magic portfolios that generate unbelievable returns. However, this particular article ain’t about investing tips and tricks because I am sure you will find unimaginable number on books about how to think and invest like Warren Buffet. Now, if you want to nurture a good investment legacy, you need to put money in the stock markets and before you do that, you need a good stock broker!
Let’s find a freaking good stock broker!
Well, that is what this piece is about: hunting for a good stock broker and what to look for while selecting one. However, before deep diving into understanding the mechanism behind selection of a stock broker, we have to compulsorily decide about our style of investing. As most of the people know that there are two types of guys in the stock market: traders and investors.
For new and young guys, I believe that they should adopt a buy and hold investor approach rather than the trader style of investing because trading in stocks requires experience, lots of experience.
So, now the tricky part i.e selecting a broker. There are two kinds of stock brokers that exist in the system that are: full service and discount guys (Read more about them here). The concept of discount brokerage is picking up fast in India with participation of companies like Zerodha, RKSV and others. For novice investors, it is suggested that they opt for discount brokers because of a couple of reasons.
Firstly, it is cheaper than full service brokers and hence, falls within budget. Additionally, it works on DIY approach because an investor does not get assistance or advice on stocks, which allows for greater learning during the initial years. Well, it might sound as a surprise but you have completed the first and the most crucial step to selection of a good stock broker.
The bullet points 😉
Now, once you are settled on the type of broker you want to go for, your next move should be to make a list of 3-4 brokers (not more than 4) after checking for the following:
Reputation: It is highly important that you check the credibility of chosen brokers. This can be done by visiting websites that compare/review the brokers, including the SEBI floated website. In my opinion, the best way to ascertain credibility is to find a person (a relative, friend, acquaintance or any other) and ask every detail from him/her.
Ease of communication: It is always better to select a stock broker who is in proximity; so as to have better communication (applies to romantic relationships as well).
Services offered: As I mentioned, novice investors should preferably go for discount brokers and as such, can ignore this point. However, if you are going for a full-service broker then it is prudent to keep this point in head.
That’s it! Now, just one last step and that is checking for cost efficiency (damn important). Most of the stock brokers have now come up with a brokerage calculator (a couple of links have been given in the end) to allow the investors to simulate a trade and compare the brokerage. If the said facility is not available, then it is mandatory to inquire about the brokerage from a customer representative.
I hope you are not yawning by now because the article is over. Yayy!
The links for brokerage calculators of Zerodha and RKSV:
P.S: If you have any questions then please post it in the comments section and I will try my best to answer it 🙂