How to Choose a Stock Broker ?

There are more than 8,000 SEBI registered brokers and sub-brokers, all providing a similar service, i.e., buying and selling securities. Given this large number, it would be very difficult for one to find the right broker. Thereforem one must look atleast for the following factors before selecting a broker:

1. Broking rates :
As per SEBI guidelines, a broker can charge a maximum of 2.5 per cent of the consideration as brokerage. The standard rate charged by most, ranges from 0.30 to 0.5 per cent depending on the volume of business that ones does. In most cases brokers provide competitive rates to the high value investors and to regular traders. Therefore, depending on the kind of trading that ones does or intends to do (delivery based trading, intra day, derivatives,) one must look at the rates that is applicable and then choose a broker.

2. Delivery channels for doing transactions:
One must chose a broker where the investor can buy or sell securities, either by phone (Through a call center) across the country and world, by giving an order through the internet or by making personal visits or through the mobile phone. The more the number of channels that a broker offers and provides a decent level of response times for each channel, then that broker should be preferred.

3. Other investment instruments:
Brokers now a days also provide a facility to invest in other financial instruments such as Mutual Funds, Bonds, FMPs, IPOs, Commodities etc. Thus one should ideally look for a broker who can facilitate investing all the above instruments and provide for a single stop investment hub for the investor.

4. Reputation:
Broking is a business that requires a low capital base. An individual/corporate/institution can acquire membership as a broker of National Stock Exchange (NSE) with a net worth of 100 lakhs. Thus it is very important that one is not lured by the freebies of the new brokers without ascertaining their reputation. There are enough number of instances where the broker does not deliver the shares on time or does not deliver the money due in time. Looking at the history of them especially when the markets were not doing well will give a good idea on their reputation.

5. Flexibility:
The stock exchanges follow the T+2 settlement schedule. This means that settlement occurs two days after the transaction. Hence, if you decide to buy shares on a given day, you must submit the cheque to the broker well in advance, so that he can deposit the amount with the exchange. Some of the brokers do provide flexibility in terms of payments made, while others ask for an upfront payment of funds. Brokers also allow margin based trades and square off of positions in intra-day transactions. Ideally, one must check with the broker as to what are the facilities available. At the same time too much of flexibility means that the there is something fishy that the broker is resorting to.

6. Investment advice :
Brokers also have sometimes a tie up with a research company or have their own research wing that produces research reports which are then circulated to the brokers clients and given them advice. There are different types of reports such as fundamental driven or technically driver (based on chart analysis of previous movements).

7. Service Quality:
Service quality of the broker is another important determinant. For instance, how fast a broker can transact for his clients reflects his service standards. Since markets operate on a real time basis, at times, small delays result in financial losses. Another aspect of quality is transfer of security by the broker to the client account, settlement of funds, timely dispatch of contract notes, providing transaction ledger to the clients etc.

8. Stock pledging:
Some of the brokers offer other facilities where one can pledge the shares that one has got and borrow money. This is useful especially in emergency situations for an investor who does not want to sell his stick but wants money.

9. Other frills :Some of the brokers also offer some frills like no charge on demat account if the customer has done trades whose turnover is more than a minimum amount prescribed by the broker.

Thus one should look at the above factors before deciding a broker for doing their transactions.