5 Vital Factors to Consider when Choosing the Right Online Brokerage to Build a Portfolio with

We’re in the midst of a retail revolution, as more individual investors are using the stimulus packages they’ve received in the pandemic and increased periods of isolation to build their portfolios and make their first trades. But what are the key considerations to make when finding the right online brokerage for you? Let’s consider five key factors that can help you to make the right moves in the market. 

So far, 2021 has seen record-breaking volumes of trades arrive on stock markets around the world, as retail investors begin to grow in numbers alongside their institutional mainstay counterparts. 

(Image: Financial Times)

As the data above shows, US stock trading spiked to new records in late 2020 and early 2021. Retail investors made their dominance felt early this year when large numbers of individuals congregated on Reddit page r/WallStreetBets to devise a short squeeze on GameStop shares – sending the value of the stock rocketing upwards by a 1,792% peak in late January 2021 from its opening price at the very beginning of the year. 

(Image: Financial Times)

However, Financial Times data also shows that the trading themes of retail investors have largely been unfocused, with ETFs, travel stocks, growth investments, meme stocks and ESG shares all spending brief periods of time in vogue. 

This insight shows that investing is about far more than simply picking and choosing a stock and buying it. Platforms need to suit the goals of investors and support them on their journey. 

“Most trading platforms are very similar in the way they organise information,” notes Maxim Manturov, head of investment research at Freedom Finance Europe. “Usually, when you open your trading platform, the price area is the largest area that appears in front of you. Below the price area, you will usually see pre-selected indicators, such as RSI. These indicators take price data from price charts and convert it into visual information, such as charts, bars or other oscillating lines. Underneath this, you will usually have information about your account, past trades or open positions. Traders often refer to this information as profit and loss and show the current profit or loss on your open trades.”

However, many platforms can vary in more subtle but significant ways – like how they make money and the types of markets they support. With this in mind, let’s take a deeper look at five key factors that retail investors need to consider when picking the right online brokerage to build a portfolio with:

Assess Your Needs

Before you start allowing yourself to become enticed by new brokerage offers, be sure to consider the most important needs that you want your trading platform to address. Everybody wants different experiences and to take separate approaches when it comes to investing, and by listening carefully to your goals and your level of experience, it’s possible to identify a platform that suits your needs well. 

For instance, if you’re just getting started, it could be worth prioritizing features like educational services, on-site glossaries, around the clock support and the ability to operate practice accounts before diving in. 

On the other hand, if you have more experience already but are looking to become a serious investor, you could find yourself benefiting more from higher levels of education tools and opinion-based resources from industry experts and professionals – as well as a more rich array of technical data. 

Consider How Your Brokerage Makes Money

Charges for investing are largely unavoidable, but it’s important to ensure that fees don’t eat into your returns to the extent that you’re having to work harder to secure your portfolio’s growth. 

All investment platforms charge in different ways, and at present, payment for order flow is the most prominent approach for brokerages. This involves platforms selling the order flow they receive to market makers in return for a fee. Although this means that firms don’t have to charge commissions from their investors, it indicates that investors may not receive the most competitive rates from these third parties. 

Alternatively, some platforms still charge flat fees for running money while others offer percentage-based models. Others, like Public.com have opted to incorporate a tip-based operating model – meaning that investors only pay what they would like to the platform or nothing at all, should they wish. 

Keep an Eye on Account Minimums

This can be a particular problem if you’re looking to find your feet in the world of investing in a gradual manner. While it’s possible to find plenty of high rated brokers with no minimum opening account balances required, others may require a minimum initial investment – which can sometimes cost as much as $500 or more. 

It’s commonplace for a mutual fund to require similar minimum investments – meaning that even if you can open a brokerage account with a small amount of money, you may find it difficult to actually invest in it. 

Diversify Your Assets

Investing means more than just the stock market, and trying to become wealthy in a short space of time by putting your faith into a handful of stocks is likely to fail in the long run

Although picking winning stocks is a key part of retail investing, it’s better to find a platform that can bring more diversification into play in terms of allowing you to choose bonds and various other asset classes. Online brokers like Robinhood and eToro even let users buy certain cryptocurrency assets to hold – should you feel as though you have the stomach for the high volatility that comes with crypto. 

Access to Research and Insight

We’ve already touched on the importance of educational resources, but it’s also vital for users of all levels of experience to be capable of tapping into the wealth of insight and metrics that can be produced within the industry. 

Most investors will want their brokerage to offer up plenty of information to make the best decisions when it comes to investments. In an ideal world, a brokerage account that offers a wealth of information at the fingertips of its users is key. 

Keep on the lookout for brokerages that deliver third party and independent research and performance analysis of stocks and funds. Although this information is available around the internet, the accessibility of such content can be vital when making investments on your chosen platform. 

Although the world of investing can be a rich and varied place, the best brokerages out there can help you to settle into trading in a way that helps to build your confidence and make informed decisions. By asking yourself about your goals and the product offered by the brokerages you’re considering, you can give yourself the best chance of choosing the ideal platform for your needs.