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What to look for in your broker

A good broker isn't necessarily the one on who charges the least. Assess you broker for security of transaction and reliable advice as well.

twitter-logoTanvi Varma and Priya Kapoor         Print Edition: Nov 29, 2007

Just a fortnight ago, we told you not to let the volatility in the markets get to you (Keep Smiling, 15 November 2007). Keep investing, we said. If you haven’t started yet, this is as good a time as any, we added. Since the markets have been going up ever since, more and more investors are looking to invest directly in equities. Which is only good news for stock brokers.

CHECKLIST FOR SELECTION

Track record: Avoid firms that have been entangled in legal or regulatory problems in the past. Seek referrals from acquaintances
Accessibility: Getting through to the trading division should not be difficult. Check if there are enough phone lines and trade executors
Low costs: Compare brokerage charges of other firms. Opt for a plan that suits your trading style
Wider reach: The broker should trade on both NSE and BSE to ensure that you get the best prices
Online security: Make sure your online brokerage uses advanced encryption technology to prevent hacking
Broking houses are locked in a fierce marketing battle to win customers, offering everything from low brokerage rates to innovative plans, from free research reports to generous margin limits. And all this for a fraction of the percentage they will earn every time you buy or sell shares through them.

It all sounds very good, no doubt, but is all this really for you? Should you stick with your broker simply because you pay a low brokerage fee? And if you’re a newbie, should you select a broker because you are offered free research reports? We cut through the clutter and examine the basic services that a broker ought to provide and what the value-additions are.

If you already have a broker, examine the services and charges offered. If they are not satisfactory, ask if you can get a better deal; otherwise, consider moving to a different broker. If you’re new to the markets, remember that selecting a stockbroker is as crucial as choosing the right doctor. Honesty, trustworthiness and competence are vital. Otherwise, it may prove injurious to your financial health.

THE SERVICES

Decide on your requirements before signing up. “We offer four different trading accounts, based on individual needs,” says Vinay Agrawal, vice-president, e-broking, Angel Broking. Brokerage firms today offer a bouquet of products and services, including trading in equities, commodities, derivatives, IPOs and mutual funds through both offline and online models. Some also offer financial planning and advisory services.

You can trade online, standing in front of a trader’s terminal, or on the phone through either voice or SMS. So, what channel should you use? An online platform offers many tools but it is important to understand these to avoid blunders. For example, you can set “at market” orders, limit orders, and stop losses. But a mis-click could cost a fortune. “Computer literacy plays an important role, since one needs to be Net-savvy,” says Agrawal. If you are not tech-savvy but know where to invest, start small with an online account. Once you are familiar with the system, you can raise the volume of trade.

Brokerage charges
Click to view the brokerage charges of select firms.

Many brokerages also allow online clients to call and place orders. This is useful if, for some reason, the Internet is inaccessible. “We do not differentiate between our online and offline customers; they can use both trading modes and the services remain the same,” says Agrawal.

If you are a seasoned player and like day-trading, you might prefer trading at an outlet where you can directly place orders to the trader. That’s because online trading closes 15 minutes before end of session so an online day-trader can miss crucial last-minute moves.

In terms of value-addition, most brokerages provide research reports to their clients. Most broking houses offer research reports on over 100 stocks to its online clients while others give customers access to research by different brokerages. “At the end of the day, it is the customer who has to make an informed decision” says Anil Kaul, director and CEO (retail), ICICIdirect. However, adds Agrawal, “Many people prefer to do their own research and invest online. It’s more convenient.”

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