Author: Karl Marrion
Why choosing the right broker is important.
If you want to trade stocks, I am sure the main reason for this is to earn better returns on your money than the bank would give you. Did you know the broker you choose can have a significant effect on the returns you make?
I’ll explain to you why this is. For this example let’s say that we have a $20k account and we make 10 trades per month or 120 a year. Let us also assume that before trading commissions we have made a nice return of 12% across our portfolio. This would take our account balance up to $22,400. A profit of $2,240.
Depending on your risk tolerance and financial goals 12% may be a good return for you or it may be too low.
I will show you trading fees will affect your returns. Let us say broker A charges $9.99 per trade. If we use the example above of making 120 trades per year, this would result in trading fees of near to $1,200. This amounts to over half of the 12% return.
Let us also say that broker B currently charge $2.95 per stock trade. If we made the same trades with this stock broker, the total cost of stock trades for the year would be $354. As you can see, this is much less than Broker A.
Now we can look at the net returns after stock broker fees and see the difference:
If we use Broker A our net return would be $1042. This is around 5.2%. Many savings accounts can earn this amount risk-free.
If you had used Broker B your return would be 9.4%. Much more respectable.
This clearly demonstrates that the broker you can choose can make a very significant difference to your bottom line.
Many brokers are clever with their hidden fees such as inactivity fees and fees on broker assisted trades. Be sure to ask your broker about these fees. Remember, a stock brokers goal is generally to extract as much money as they possibly can from you.
One broker is not necessarily the best choice for everyone. Different trading require different brokers. For example some stock brokers have lower margin rates, whilst others are much higher. If you don’t trade on margin, this won’t be a concern for you, but if you do it may be a major concern for you.
There are literally 100′s of online stock brokers now and they all desperately want your business. You can afford to take your time and be choosey to get the best deal for your cash.
About the Author:
Karl Marrion is an experienced financial trader. He enjoys helping traders improve their chances of being successful. Would you like to learn more about stock trading? Visit Peter’s site and compare different stock brokers to find the right one for you =>
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Article Source: ArticlesBase.com – How selecting the best stock broker can greatly increase your bottom line
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