Online Broker: Which Type Are You Looking For

In the context of trading in stocks and other financial instruments, the term online broker may refer to different types of individuals or business entities involved in the business of buying and selling in financial markets. A broker is a firm or an individual who charges a commission or fee for executing buy and sell orders on behalf of investors. Almost every traditional broker that matters has an online presence and acts as an online broker by providing clients with a trading platform. In that sense, an online broker is no different from brokerage firms that we are all know very well.

Technically, the role of a broker is limited to providing quotes and communicating orders to the stock exchange. However, it is highly competitive market out there, the reason why most brokers in the financial markets provide a host of other services such as market analysis and investment advice. Such brokers are known as full service brokers.

The internet has given birth to another breed brokers known as discount brokers. A discount broker is an online broker who executes buy and sell orders on your behalf for a fee that is much lower than a full-service broker and provides no other service.

There is yet another type of online broker, who although not a broker in the true sense of the term, is often referred to as such. Although involved in the business of executing orders, such brokers are primarily dealers and not agents. A broker is an agent who acts on behalf of a client and does not assume any risk. A dealer is a principal who trades in his or her own account and is party to a buy or sell contract. Such so-called online brokers are commonly involved in over-the-counter markets such as forex and CFD trading.

Seven Tips to Find the Right Online Broker

Once you decide to buy shares you will need to find the right broker. Having a broker is vital to buying shares as you cannot do so without one. Increasingly, the online broker is very popular as they usually charge less and can be contacted via the computer often more quickly than by telephone. Here are some tips to choosing the right online broker. 

* The online broker should hold an Australian Financial Services License issued to them by ASIC.

* An online broker should have a variety of trading tools on his website such as charting facilities, the latest stock news, and up to date stock quotes.

* You need to ask the online broker how fast their orders are being executed. Online trading is much faster than other means – but they still have to be there to do it. Fast orders not only save time, they result in more control over your trading.

* Does your online broker get paid by order flow? If he gets a commission for sending orders to certain market makers it can lead to a conflict of interest. You need to know he has your interests at heart.

* Has your broker made an online trading demonstration platform available? If so how much does it cost to access it?

* If they do have trading platform software available is it easy to use and modern? If it is slow or unmanageable it will cost you in terms of lost opportunities and thus, profit.

* Do they have stop loss orders available to mitigate your risk further?