Choosing a broker is the first and also one of the most important steps you need to take when you decide to invest. Find out where to get reliable information on the current market events.

As you enter the world of investments, you should be aware that there are many decisions to make and aspects to consider. Most likely, the first one will be choosing your brokerage firm as it is necessary to gain access to financial markets. In this article, you will learn what you should definitely pay attention to when considering the offers and conditions of various brokers available on the market.

Credibility of the investment firm

In finance, there is no shortage of tricksters or various types of scam companies that may look professional and legit at first glance. The best way to make sure that your broker is credible is to check whether it is fully licensed and supervised by the state authorities. Below you will find examples of the authorities that supervise financial institutions in given countries: 

  • Poland – KNF (Polish Financial Supervision Authority)
  • United Kingdom – FCA (Financial Conduct Authority)
  • Cyprus – CySEC (Cyprus Securities and Exchange Commission)
  • France – AMF (Financial Markets Authority)
  • Dubai, UAE (financial free zone) – DFSA (Dubai Financial Services Authority)

Supervision and authorization of brokerage firms by financial supervision institutions ensures that these companies have been thoroughly checked, and that they comply and operate within the law. Such companies are also an entity in guarantee funds, which ensure the safety and return of your deposited funds in the event of bankruptcy or insolvency of a given broker.

Below is the list of the guarantee funds in given countries, as well as the amount of deposits they secure:

  • Krajowy Depozyt Papierów Wartościowych (KDPW, Poland) – maximum compensation is the equivalent of 20,100 EUR, including: 100% up to 3,000 EUR and 90% surplus over this amount up to 22,000 EUR
  • Financial Services Compensation Scheme (FSCS, UK) – maximum compensation up to 85,000 GBP
  • Investor Compensation Fund (ICF, Cyprus) – maximum compensation up to 20,000 EUR

It is also worth noting that individual clients are secured by given guarantee funds, regardless of their nationality – only the jurisdiction to which a given broker is subject, is a factor determining the security and possible disbursement of funds.

Cost and fees must always be fully transparent!

The goal of a brokerage firm, as well as any other business, is to operate in order to make a profit, Therefore, it should come as no surprise that your account will be charged with some costs. However, all information on the costs and fees should always be fully transparent and easy to find and understand. Below is the list of the most important costs and requirements for running a brokerage account, that you should definitely pay attention to:

  • Charge for running the account (usually monthly or annual; independent of other fees)
  • Operating commissions (eg. for buying or selling assets)
  • Additional costs (eg. SWAPS, spreads, management fees etc.)
  • Turnover-related costs and requirements (eg. deposit and withdrawal fees, minimum deposit value, transaction limits)
Instruments offered

Currently, investors have a number of different types of instruments in which they can put their money – from organized market instruments (eg. stocks, ETFs) to OTC market ones (eg. CFDs, Futures). Sometimes the instruments in both of these markets overlap – an investor can purchase both shares of a given company on the stock exchange and invest in it using a CFD contract based on these stocks. This “connection” creates a basis for manipulation,  as some brokers skilfully use this fact, hiding the shortcomings in their offer with misleading slogans. However, they are obliged to specify their offer in the documentation regarding the specification of the offered instruments. Therefore, before choosing a broker, check carefully whether it offers the instruments that interest you. Do not rely on marketing messages only!

In a number of financial instruments offered by brokers, you can often find derivatives, such as: Options, CFDs, Futures, the price of which depends on the price of the underlying asset. They are leveraged, which means that only a fraction of a given capital is required to invest in them. The amount of leverage may vary and depends on the type of instrument or the broker’s offer. However, the law in the EU countries clearly specifies the maximum levels of financial leverage on given instruments. Always make sure if the margins offered by your brokerage firms both comply with the financial law requirements and suit all your needs.

Investment platform

All brokers offer access to the investment platforms, both proprietary and partner. However, keep in mind that partner ones are designed in the most universal way. If you are looking for solutions that meet your needs, it is best to choose a broker with its own platform. This way you can be sure that it has been designed in the most intuitive way. In addition, any inconvenience related to the use of the platform can be reported directly to its designer (broker), thus speeding up the time of solving the problem.

Brokerage platforms offering free DEMO accounts, on which you can test your knowledge and skills in a safe way (by trading with virtual funds) have already become a standard on the market. Moreover, you should also pay attention to a number of other extensions related to a given platform, such as, for example, a section of educational materials or constantly updated market news, as these are solutions that will particularly contribute to the effectiveness of your trading.

Customer support

The complexity of financial markets and the multiplicity of functionalities of investment platforms can create all kinds of problems. That is why it is so important that the broker you choose offers professional customer service. Remember that at this point, customer service in your native language, available 24 hours a day, as well as a dedicated account manager, to whom you can always turn with an inquiry are becoming a standard on the market. These are the services you should look for, as professional support is extremely important when taking first steps in the world of financial markets.

Additional benefits

Only the most important points are listed above, which you should definitely pay attention to when choosing your broker. However, nowadays, brokerage companies are trying to outdo each other by adding additional functionalities and benefits related to running an account, for example access to webinars, free educational materials, updated market news, or aforementioned dedicated account manager. Therefore, it is good to carefully research the offers available on the market, so as not to lose the interesting benefits.

Choosing your brokerage firm is the first, but also one of the most important decisions when operating in the financial markets. It will have a direct impact on your trading, so it is important to select the right one. Choose wisely!

Remember: Do not fall for investments marketed as certain or offering spectacular rates of return. There are plenty of scammers on the market, so always check a given broker in the registers of supervisory authorities.