Table of contents:
- 1 What is the purpose of an online broker?
- 1.1 Why you can rarely rely on an online broker comparison on the Internet
- 1.2 Online broker vs. branch bank
- 1.3 According to which criteria should an online broker be selected?
- 1.4 The range of trading instruments
- 1.5 The trading conditions
- 1.6 How is the Online Broker regulated and how are customer deposits secured?
- 1.7 Are there any previous awards?
- 1.8 Where is the focus of the broker comparison?
- 1.9 Which trading platforms are made available?
- 1.10 What types of orders are offered?
- 1.11 What training opportunities are offered?
- 1.12 Which type of broker corresponds to my own ideas?
- 1.13 Demo account
- 1.14 The customer service
- 1.15 Previous experience of customers on the Internet
- 1.16 Conclusion
Do you want to trade with an Online Broker? – Then you are right on this page. I will show you the best Online Brokers in comparison. How does an Online Broker work and which conditions are offered? – I will answer the most asked questions about this topic.
What is the purpose of an online broker?
Broker Comparison: This article will focus on the aspects to be considered when looking for a suitable online broker. Online brokers are now available almost like sand on the beach, which makes it all the more important to be able to evaluate them appropriately as potential customers.
The first question is what an online broker is good for. An online broker is virtually an interface between private and institutional investors and the stock markets. According to the German Banking Act (KWG), a broker is a credit institution that is responsible for the “safekeeping and administration of securities for other custody transactions” of its customers.
As such an institution, the Broker receives the buy or sell orders of the customers and either forwards these to the corresponding stock exchanges or offers the customers his own prices. An Online Broker can be seen as an intermediate instance between investors and the stock exchange.
Since there are many different online brokers on the market, it may be anything but easy for one or the other investor to decide which one is the right one. For this reason, the following article is intended to provide assistance and help you concentrate on the important factors when looking for a broker.
Why you can rarely rely on an online broker comparison on the Internet
Now, however, the number of online broker comparisons on the Internet is almost equal to the number of online brokers. And even these differ from comparison to comparison, so that it is almost impossible to get a more accurate picture. What makes the problem even more difficult is the fact that on many “Online Broker Comparison” websites the objectivity and neutrality is not maintained.
This is due to the fact that many of these websites that carry out an Online Broker Test receive commissions for referring customers from the respective brokers. Thus, in most cases an affiliate business relationship exists, which makes a neutral assessment impossible. Accordingly, the evaluations by the respective websites always take place in their own interest.
This report, on the other hand, has no advertising background and does not make use of affiliate marketing. We are therefore not dependent on the advertising of certain online brokers and can guarantee a completely neutral report.
Online broker vs. branch bank
In principle, it is also possible to open and trade a securities account via the branch bank of your choice. Many people therefore ask themselves whether their money is better off with an online broker or with a branch bank. However, this question cannot be answered in a general way, as every investor has individual requirements and therefore expects a different range of services.
However, a study conducted by Stiftung Warentest shows that on average, online brokers are slightly cheaper.
According to which criteria should an online broker be selected?
If, after careful consideration, you have decided to try an online broker, the next step is to find a suitable provider. However, as already mentioned, this proves to be not very easy in view of the very large offer. For this reason, the following are the criteria that one should definitely pay attention to when choosing a broker.
The range of trading instruments
A first thing that investors should consider when looking for a broker is the range of trading instruments on offer. Of course, this always depends on which instruments you prefer to trade. In principle, however, it is not wrong to use an online broker with a wide range of trading instruments in order to be able to trade on as many markets as possible.
The range of tradable instruments can usually always be viewed on the respective website and should always be included in the selection decision.
The trading conditions
No less important are of course the conditions offered by the respective online brokers. The trading conditions describe the cost factor that investors have to take into account for trading. This is usually divided into several other cost factors, of which it is made up.
The most important cost factors that should be taken into account are custody account fees, order commissions, spreads and other fees. The different types of fees are briefly explained below.
Accruing custody account fees
The first cost factor to consider when looking for a broker is the custodian fees. Not every online broker charges fees for maintaining an account, but there are still some providers who do. These costs are usually a fixed amount per month or year, which is completely independent of your trading volume.
Order commissions and spreads
Another cost factor that should not be ignored under any circumstances is order commissions and spreads. Both the branch banks and most online brokers charge these fees as a percentage of the order volume executed. Accordingly, the spreads always depend on the number and volume of the executed trades.
Spreads refer to the difference between the lower bid price and the higher ask price, i.e. between the supply and demand price. If there are more market participants and a correspondingly high trading volume, the spread is generally smaller than for exotic underlyings with few market participants.
In addition to the spreads, some brokers also charge commissions. These are usually calculated as an absolute cost rate per contract or as a percentage of the trading volume. Online brokers often charge a minimum commission, which must be paid if only very low trading volumes are traded.
Commissions are also charged twice, once when opening and once when closing a transaction. Since the commission is usually only stated as half turn (i.e. only one side), you have to double it to get to the round turn.
In addition, other fees should always be taken into account, which are independent of custodian fees and commission costs. These include, for example, limit fees, inactivity fees and costs for the cancellation of orders. Many brokers also charge fees for holding overnight positions. The fees that are charged vary from broker to broker.
When looking for a suitable online broker, you should therefore make sure that you find a provider with as few other fees as possible.
How is the Online Broker regulated and how are customer deposits secured?
What should be considered when looking for a broker is the regulation of the Online Broker and the way in which customer deposits are secured. Appropriate regulation by the appropriate authorities should definitely be given high priority. Without such regulation, it cannot be assumed that everything will go right.
For this reason, unregulated brokers run the risk of falling for fraudulent intentions. In addition, the protection of customer deposits also plays a major role. Under normal circumstances, online brokers should always keep customer deposits separate from their own company capital so that there are no very high financial losses in the event of insolvency.
Information on the regulation and protection of customer deposits can usually always be found on the website of the respective Online Broker.
Are there any previous awards?
Awards for the services of online brokers are always a plus factor. These are usually always displayed and listed directly on the website. Therefore, when searching for a suitable broker, you should always take a look at them.
There are a number of different categories in which an online broker can be awarded. For this reason, it should always be taken into account for which service the respective provider was awarded. In addition, attention should always be paid to where the awards come from. These should always come from reputable websites or verifiably conducted surveys of customers.
Where is the focus of the broker comparison?
Depending on one’s own individual expectations and demands, the focus of the individual online brokers naturally also plays an important role. While some investors trade exclusively in shares, others have discovered trading in foreign exchange or CFD trading for themselves.
Depending on the chosen focus, a provider should also be selected in the course of this, which has specialized in the corresponding areas or trading instruments. Because usually every online broker focuses on a certain specialty. While one broker, for example, is designed for trading in shares, the other focuses on trading in foreign exchange or CFDs. Before you decide on one, you should therefore always make this clear first and check whether the corresponding provider has specialized in the preferred tradable instruments.
Which trading platforms are made available?
Another point that you should compare with different online brokers are the trading platforms. Most online brokers provide their clients with different platforms through which they can trade.
Therefore, it makes sense to also look into the offered platforms and to become familiar with them. Normally, this is always possible via a demo account without any costs. Some providers rely on proven and well-known trading platforms such as MetaTrader 4 (MT4) or MetaTrader 5 (MT5). Also cTrader enjoys great popularity with many traders.
Other online brokers on the other hand offer their own developed platforms, which are adapted to their services. In this point it is also not possible to say in general which option is the better one. As an investor, one should consider the advantages and disadvantages of the trading platforms and decide for himself which one seems to be the best.
What types of orders are offered?
A further evaluation criterion when choosing a broker concerns the types of orders that investors can take advantage of. As an investor with experience, you should not trade without limits. For this reason, you should make sure that the online broker offers basic order types such as limit, stop limit, stop buy or stop loss.
Trailing stops for dynamic adjustment of the set limits are also usually useful.
What training opportunities are offered?
Not to be neglected are also the opportunities offered to clients for further training. Especially as a beginner in trading, it is essential to deal with the subject matter and to acquire the necessary know-how. But also for advanced investors a constant further training is essential.
Therefore, a comprehensive range of educational opportunities is of correspondingly high importance. In this context, many online brokers offer their clients webinars, video tutorials, explanatory articles on specific topics and in some cases live seminars.
Which type of broker corresponds to my own ideas?
In the trading area, one can also distinguish between several different types of brokers. As an investor looking for a suitable broker, you should therefore know which types of brokers there are and how they differ from one another.
Dealing Desk Broker
The so-called dealing desk brokers are also known as market makers. The special feature of these is that they set their own prices for currency pairs. An order is executed independently of the banks and directly between buyer and seller.
It should be noted, however, that these specially quoted prices can sometimes differ considerably from the banks’ prices.
Non-dealing desk broker
In contrast, the exchange rates of Non-Dealing-Desk Brokers depend on the selected partner banks, which are then also provided by them.
STP Brokers and ECN Brokers
In addition, two sub-groups can be differentiated for the Non-Dealing-Desk Brokers. On the one hand, there are so-called STP brokers, who earn their profit through the spreads. While some brokers offer their customers fixed spreads, others are known for their variable spreads.
On the other hand, ECN brokers make their profit through fixed commissions, which accrue per order. The spreads of ECN brokers are generally variable.
What both types of brokers have in common, however, is that both STP and ECN brokers receive prices from the interbank market.
As mentioned before, it is always advisable to test the trading platforms offered by an online broker via a demo account before deciding on a live account.
Demo accounts should generally not be linked to any other liabilities. It is also an advantage if the respective demo account can be used for an unlimited period of time. Especially beginners should always use this account to get an overview of the functionality and tools of the trading platforms.
The customer service
Furthermore, the quality of customer service should not be neglected. Reliable support is indispensable for a competent online broker. Here, for example, attention should be paid to the contact options offered (live chat, telephone, e-mail). If problems arise, customer service should ideally be available quickly and at flexible times.
Previous experience of customers on the Internet
In this context, customer experiences on the Internet, which have been made and published to date, also play a major role. Especially the better-known online brokers usually have a large number of ratings and customer reviews on the Internet to orientate themselves by.
In particular, customer opinions on factors such as customer service, the range of tradable instruments on offer and trading conditions should be researched and taken into account in advance.
Finally, it can be said at this point that it is definitely important to consider the various factors that play a role in the selection of a suitable broker. However, different criteria are important for each investor depending on their individual needs. Therefore, it is not possible to highlight a particular online broker as “the best” across the board.
It should also be taken into account that many websites use affiliate marketing to advertise certain online brokers for their own benefit, which makes an objective evaluation much more difficult.