Choosing a stockbroker is a little bit like dating, is it not? For one, you’re choosing a potential lifetime partnership. Secondly, your choice of stockbroker will certainly affect your outgoings, and thirdly, you may come to regret making a poor choice if you prioritise the short-term benefits over longer term factors.
It therefore comes as no surprise that different stockbrokers can be matched with different types of investors.
This isn’t about branding, marketing or user-interface, but about the more fundamental question of – what type of investors does a stockbroker want to serve? This question tends to drive everything about a stockbroker’s service, from their pricing structure to their incentives to their range of available investments.
Let’s take a look at three different investor profiles and what they should be looking for in an ideal stockbroker partnership.
Very Active Traders
Traders that buy and sell very frequently (also known as daytraders) will be looking for some very specific features in an investing platform:
Powerful charting and pricing data
A day trader may use quantitative analysis to decide what to trade and when. It’s helpful if their broker software has this integrated into the platform for a seamless experience.
This is certainly not available on cheap ‘share dealing’ accounts. Access to live market data and order books is often not included in packages by default, so day traders will need to consider the price of including it in their account.
Low trading fees for high volume
Day traders will also be incurring trading fees at a significantly higher rate than the average investor. Therefore, they will be obsessively looking for a broker who offers them the cheapest rate per trade. Trading fees eat away at the profitability of every position taken. The lower the trading fees, the greater the number of trades that will turn a net profit. It’s no wonder that this is important.
A day trader will incur so many trading fees that the account fee or administration fee will pale in comparison and will not be a core factor.
Low cost passive investor
Free access to basic funds such as index trackers
A passive investor will want to be sure that they can get access to the lowest cost and largest passively managed funds available. This is not a big ask – most platforms provide this service, however not all of them provide it for free.
Low (or zero) account fees
A passive investor will be making few trades that trigger trading fees, therefore the overalls account fee will potentially be their biggest spend. It therefore makes sense for passive investors to price check different stockbrokers to see which account has the lowest standing charge for an investment account of their size.
An adventurous investor is someone who wishes to hold a diversified portfolio with many different asset classes.
This shouldn’t be taken for granted with modern investment platforms. Some platforms only allow customers to buy domestic shares and funds. This suits many investors, but not those looking for exotic options such as:
- Corporate bonds
- Preference Shares
- Foreign equities
As you can see, different types of investors demand very different investment platforms. If you simply jump into the market and pick at random – it’s unlikely that you’ll land on the optimal account for your investing style. Therefore take care and consider what type of investor you plan to be before making your account choice.