How to choose the right broker.


Since the liberalization of the economy and the boom in the capital markets, investing is no longer seen as an esoteric activity to be undertaken by only a few institutions or rich families, but something that is a necessity for aam aadmi investors. And why shouldn’t they? Over a long time period, financial markets offer better returns than any other asset. To cater to this burgeoning market, brokers and broking firms have mushroomed all over the country, each offering seemingly more attractive terms than the other. Compounded with plethora of slick marketing campaigns, the investing public are confused than ever of which broker to choose. How to discriminate and elect one broker out of a market full of them, is in fact the first hurdle that investors often face.

Here is what we think about this conundrum.

The first thing to remember is that brokers and broking firms have strengths and weakness’s that are unique to them. The second thing, is there is no such thing as a free lunch and customers should avoid the trap of trying to save a few paisa on broking fees without understanding the risks involved in it. In other words, clients should not be penny wise, pound foolish.

So here are a few practical tips that we can give you.

  1. Broking is about Trust: This is the golden rule to remember, before a customer chooses a broker. Can he trust the particular broker or broking firm? Are they transparent and fair in their dealings? These must be utmost in the mind of the broker.
  2. Look for the right advantages: expertly crafted ad campaigns can often confuse customers as to what offering’s by a particular broker is really useful to him and what others are gimmicks.
  3. Learn to look for the right mix: All brokers will offer the same gamut of basic products and services. Each one, however will have certain strengths and weakness’s. A customer must first decide which of these advantages he wants( like trust, technology) and which disadvantage he is willing to tolerate(like higher transaction charges). For example, a broker who offers abnormally low broking fees, may not be able to offer cutting edge services that truly making investing an enjoyable experience.
  4. Value added Services: Information and computing technology continues to revolutionize the investing experience and add value to the process. The future is even more exciting to the ordinary investor because of this. Customers should therefore focus on those brokers offering technological solutions.