Know all about brokerage firm and how to choose them wisely.
Direct stock market trading can be rather intimidating. Wouldn’t it be great if there was someone who could connect investors/traders to the ever-changing stock market?
This notion has a solution: “Brokers”. In exchange for some brokerage, they assist investors/traders with seamless long-term investing and trading.
In this article, we will highlight the topic of stockbrokers, who regulates them, and how to choose stockbrokers.
Who is a Stockbroker?
Let’s start with the fundamentals first: who are brokers and what do they do before we get into more challenging subjects.
Brokers or brokerage firms are authorized SEBI entities that engage in market activity on behalf of investors (long-term investors) or traders (frequent buyers and sellers of shares).
People who are interested in trading open their Demat accounts with the brokers and authorize them to execute trades on their behalf.
However, always remember that even if they have a license, you should frequently examine the trade statements and monitor the broker.
Because brokers frequently trade without the knowledge or approval of investors or dealers to profit. To avoid such speculations, it is best to carefully investigate the broker before proceeding with them.
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SEBI Guidelines to Regulate Brokerage Activity
Since you entrust the brokers with your hard-earned money, SEBI also aids in the regulation of these stockbrokers by enforcing tight restrictions. The best regulations which safeguard traders from stockbrokers committing any fraud are:
Prior approval from traders
Brokers will need approval from Demat account holders to trade in shares. To complete a deal, a TPIN is required, which is only known to the owner of the Demat account. As a result, brokers are prevented from profiting at the expense of innocent traders.
Also, there is an additional document by the name of Power of Attorney (PoA) which if the trader signs, the paper gives the brokers permission to purchase and sell shares quickly when there is a chance for a profit.
If you, the trader, have signed this paper, be cautious to scrutinize each PoA transaction the broker does.
Expensive admission fee
To open a brokerage firm, a large fee must be paid to the SEBI. This guideline aids in keeping undesirable brokers out of the market. This entry barrier prevents the market from becoming oversaturated with brokerage firms.
Also, every stockbroker holds a trading record containing the history of their transactions. And if the traders want to see their trading records, the brokers are obligated to share them with them.
Thus, this will also provide additional transparency to the trading activities. All these regulations are intended to prevent brokers from committing fraud, but they may also cause them to go bankrupt.
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How to Select the Best Stockbroker?
Now that you are assured that your money will stay safe with the stockbrokers, let’s discuss the deciding factors which can be used to select the best stockbrokers according to your requirements.
Reputation in the market
The first and foremost factor to check about a stockbroker is its reputation in the market. Since this is a client-centric service, the best services will have a high customer satisfaction rate.
The best way to check these metrics is by analyzing the total number of active clients under them and reading the reviews left behind by current and past customers.
Trading platforms available
The best brokers will have highly user-friendly trading platforms. One of the main reasons why this criterion is on this list is because as a trader you will be the one spending the maximum time on this platform.
Thus, it should have all the right features. Feel free to check out the demo videos of the platform before opting for the stockbroker.
There are two types of stockbrokers in the market, full-service, and discount brokers. Both of them have different services and brokerage charges.
The full-service brokers provide a complete trading facility along with advice on financial decisions, whereas, the discount brokers only provide trading facilities. Thus, according to the services, full-service brokers have a higher brokerage than discount brokers.
Now it is up to you and your trading requirements to choose the right services and the brokerage that suits you.
Trading should not have any type of hidden charges in addition to brokerage fees. And also, there should be complete transparency when it comes to informing about the charges.
Thus, before selecting a stock brokerage firm, make sure to ask them about all the types of brokerage and fees charged by them and also about any type of “hidden charges”.
Range of facilities available
Not every stockbroker covers all the investment assets. And if you are the type of investor who wants a diversified portfolio then check that the broker you select trades in all the assets.
These days the best brokers support most of the trading instruments and provide wide exposure to the market.
The brokers with sound customer service ensure a smooth trading experience. They should have appropriate technical support and a customer care helpline that are always available in case of any issues.
For the stock market, customer support from brokers is very important.
Availability of advisory and research facility
If you are new to the stock market and are not looking to do the trading directly by yourself, then try looking for a stockbroker who will perform the activities for you.
With advisory services, you will be able to enjoy professional guidance and research reports will help you with conducting personal stock analysis.
Hope this article has provided the right details to help you with your stock trading journey. You will be facing many challenges and riding multiple ups and downs of the market, however, many times with the right guidance, the journey becomes easier.
Therefore, try looking for the best stockbroker who can understand your requirements and help you with trading into multiple shares and other investment assets.
Know that regulatory bodies like SEBI are constantly monitoring the market and the participants to ensure a safe zone for investments. Happy Investing!
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