How To Choose The Best Stock Broker in 2024 (What To Look For When Choosing A Broker)

If you are serious about trading you should spend time on how to choose the best stock broker for you and what to look for. It’s an important decision, not only because of costs but also because of the security of your funds and assets.

In this article, we look at how to choose the best stock broker for you and what to look for when choosing a broker. The most important issues of what to look for when choosing a broker include your aims, safety of your funds, commissions and costs, software, and support (and more).

What does a broker do? Functions of a brokerage firm

What makes a good broker?

The main function of a stockbroker is to facilitate change of ownership, usually for a small fee.

However, you need to understand what is going on in the background of your broker. How to choose the best broker for you involves getting a better understanding of how a brokerage operates.

What to look for in a broker involves the following:

  • To provide infrastructure and software to facilitate trading.
  • To execute trades on the financial markets on behalf of the customer.
  • To provide quotes, news, and reports.
  • To provide support and help for the customers.
  • To provide margin and leverage.
  • To store and protect both your capital and your assets.
  • To facilitate short positions.
  • A broker stores and protects your private data.

A good broker thus facilitates most, if not all, of the above bullet points.

Should you choose a proprietary or retail account?

The two main types of brokers are retail or proprietary. We have previously written about the differences between a proprietary (prop) and a retail account:

If you are a day trader and trade a huge number of shares every day, you most likely can negotiate a better commission rate with a prop firm than you ever get with a retail broker. The downside is that you must give away some of your profits and your capital is at risk.

However, you avoid much of the risk by “sweeping” your account every month. If you are very profitable, it might be worth risking one month of profits.

Moreover, if you know what you’re doing, you can use leverage at a prop firm to increase earnings, much more so than at a retail broker that needs to comply with cumbersome regulations. The downside is that most stock prop firms only allow day trading.

We believe that a proprietary account is a very good choice for those who have little capital, have a proper track-record, and trade very frequently. The advantages most likely outweigh the profit split and risk of your deposit.

Is your money safe in a brokerage account?

When choosing a broker one of the most important questions should be to get a clear understanding of the risk you undertake when you transfer your cash or assets to your chosen broker, being retail or prop.

The way brokers operate differs from broker to broker, but also from region to region. For example, it’s a huge difference between The US and the Scandinavian markets (the two markets that we have extensive knowledge about).

When you buy and own shares, you need to understand who owns the shares officially. It might seem obvious that you are the owner if you buy 100 shares of Apple, but many are surprised to hear that the broker might be the official owner. You are the beneficial owner, but not the owner in the registry! The real owner of the shares is your broker – not you.

Confused? Yes, it’s not very logical. The reason for this practice is that brokers try to lower commissions costs facilitating an easy change of ownership. Mind you, the practice is perfectly legal.

Brokerages in Scandinavia are safe

In Scandinavia the ownership is segregated from the day-to-day activities of the brokers, thus making your assets completely safe.

For example, if you buy Equinor on Oslo Stock Exchange via a Norwegian broker, your shares are automatically transferred to a registry that keeps your shares in custody for you. This is 100% separated from the day-to-day business of your broker. It’s bulletproof.

Even though such a system involves two entities, the commission is pretty low: Nordnet, for example, charges 0.035% at the lowest rate with a minimum commission of about 4 USD per transaction.

Brokerages in the US: your capital is at risk (most of the time)

Most assets are held in “street name” which means assets are part of the day-to-day operations of the broker and are a liability towards you in their balance sheet.

Obviously, this involves risk on your part if the broker goes belly up. You end up having a claim towards the broker!

To remedy this risk, you have SIPC insurance. This is what SPIC writes on their website:

SIPC protects against the loss of cash and securities – such as stocks and bonds – held by a customer at a financially-troubled SIPC-member brokerage firm. The limit of SIPC protection is $500,000, which includes a $250,000 limit for cash. Most customers of failed brokerage firms are protected when assets are missing from cus