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1. Choosing Broker Tips

Understand how your stock broker works

This point is a bit more technical, but it can be helpful in picking the best firm.

Different stock brokers deal in different markets in different ways, especially when it comes to international stocks. A few offer direct market access, meaning that your order is sent directly to the exchange.

More commonly, they trade through a market maker – a company that is always ready to both buy and sell a stock and constantly quotes a price to do either. Market makers only trade with institutions and stock brokers, not directly with the public.

Depending on how your broker’s firm is set up, this could involve it trading directly with the market maker. Or it could mean that they trade through another local stock broker who trades with the market maker. The market maker they work with might be in the country you’re trading or it might be elsewhere – for example, there are market makers based in London that will buy and sell American stocks with UK-based brokers without the trade ever going anywhere near New York.

As a regular investor, you probably don’t not care much about how it all works behind the scenes. And unless you need very fast trading and the absolute best price possible, it often doesn’t make a huge difference to you.

But obviously, the more intermediaries an order has to go through, the more the costs can mount up. So if you’re going to be trading frequently in a particular market – as opposed to once in a while – you probably want a stock broker who goes through fewer links rather than more.

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