What To Look For When Opening A Trading Account
Did you know that brokers offer you different types of accounts?
I remember the uproar it used to cause when I worked at a broker.
The admin department would freak out because the application was for one thing, and the account chosen was completely the wrong one.
So many traders and newbie marketeers are so keen to kick start their trading journey that they just don’t spend the right amount of time to check out what’s right for them.
This really is a crucial step, and one you really shouldn’t casually skip over!
So how do you know which is the best for you?
Let’s find out!
Why You Shouldn’t Open An Account Like A Zombie
When trying to suss out things with a broker, don’t just run on autopilot when you open your trading account.
You really shouldn’t rush that decision.
And it’s usually the first one you make after picking your broker, which is why it’s so easy to blow past.
The type of account you open depends on the instrument you trade.
If you’re looking to trade equities, an equity account will be opened for you.
The same goes for a CFD / derivatives account or even a Forex / currency account.
You need to stipulate upfront what type of instrument you’re looking to trade and you’ll be given the appropriate account.
Another thing to remember is that the broker you’re looking at might not actually have a trading platform that's the best fit for you, or even the best rates around.
Which is why there’s so much more to it than just the type of account.
You need to look for certain things when you open your trading account!
Here are four variables you should consider and look at when doing so.
The Four Things You Need To Focus On When Opening Your Account
Trading Account Variable #1: Costs & Fees
Costs can be a real killer if you don’t pay attention to them.
Which is why when you look at the costs involved you need to pay attention ALL of the costs.
Some brokers offer you great rates but sneak in crazy fees elsewhere.
These could include platform fees or even inactivity fees.
Some brokers are only intermediaries, meaning they’re essentially a middle man between a trading platform provider and you the trader.
This means they charge a fee for every trading account they open for access to a trading platform.
If you’re inactive some of these brokers pass that fee onto you.
So you really need to compare and weigh up these costs to the volume you plan on trading.
Trading Account Variable #2: What You'd Like To Trade
Now, the last thing you need is to open an account with certain trading instruments in mind, only to find out that the company you’ve gone through all the hassle of opening your account with don’t offer them!
That’s why you need to make sure that the company you open your account with has the instruments they offer listed somewhere (preferably on their site).
Certain brokers have certain providers, so some instruments might not actually be available.
Trading Account Variable #3: The Age Old South African Problem
You need to take the quality of service into account.
Despite the stability of the trading platform on offer (because this is a no brainer if you’re going to trade through it) you also want to check if the level of customer service you’ll receive is sound.
Imagine having an emergency with an open trade only to have to wait a day or two for someone to get back to you?
Not to mention losses.
Ask around, check local websites, join groups where other traders discuss these sorts of things and do your homework.
Choosing a bad broker is your fault, not the brokers.
Certain brokers constantly win awards for good reason.
Start with them and work your way through them.
Trading Account Variable #4: The Financial Health of A Company
This might seem a little silly and obvious, but no-one ever checks this when opening their account.
They just go with the fact that the company seems like a good one.
However, with the way the markets have been behaving lately I’ve noticed one or two brokers going bust.
When that happens you won’t be able to withdraw from your account.
It gets frozen and you’re left wondering why you didn’t check things in the first place.
Alpari UK filed for insolvency in early January in 2015 following heavy losses after the Swiss National Bank unexpectedly removed the franc's ceiling against the euro.
One minute they were shirt sponsors for West Ham United and the next they’d disappeared.
These things happen, and you’d rather be on the right side of these equations.
Do your homework, and check if the business appears financially sound and is regulated.
Build The Right Foundation For Your Trading House of Profit
The market throws enough curveballs at you without you having to add to that mess yourself.
And that’s why you want to build the right foundation for your trading by starting off with the right account, both in suitability and the actual account based on the instrument you’re trading.
Remember, when it comes to finding the right one for you, you need to look at:
- Costs & Fees
- What You'd Like To Trade
- The Age Old South African Problem (service quality)
- The Financial Health of A Company
Make sure you tick these boxes before moving ahead and you should be safe to focus on what really matters when you tackle the markets.
The last thing you want to do is cripple your trades before they’ve even had a chance to play out.
Stick to answering these questions and you’ll be trading the right way sooner than you think.
Until then, here’s to profitable trading.
The Money Lab