For people thinking of trading in the financial markets, the first
thing to do is to open a trading account. And with countless platform
providers to choose from across the world, selecting a platform to be
your preferred broker can be more significant than most of us realise.
From the get-go, most providers appear homogenous, offering very
similar services. However, once you take a closer look at what they
offer, you will start noticing differentiating factors.
1. Transaction Costs
Whenever you buy or sell financial products such as stocks, Contract
for Differences (CFDs) or Foreign Exchange (Forex), you will incur a
transaction cost. This means the more you trade, the higher this cost.
Left unchecked, transaction costs can significantly eat into your
profits (or increase your losses). To counter this, it is important to
ensure that transaction costs are not excessive to the point where it
paralyzes your ability to profit from trades.
Transaction costs can be charged in two forms: either as a commission
on the transacted value of the trade or via the bid-ask prices, which
are quoted net of these commissions (i.e. commonly referred to as the
“bid-ask spreads”)
Unlike the traditional moneychanger, the bid-ask spreads offered by
brokerage firms in the financial markets are extremely competitive. For
example, IG may charge a spread starting from as low as 0.8 pips, with
the buying and selling price for 1 EUR/USD contract to be
$1.1008/US$1.1000.
Note that for CFDs you have the added advantage of trading on a
margin i.e. you are able to leverage on your investment commitment. This
additional benefit will however incur the funding costs associated with
financing this leveraged amount.
2. Reputation Of Company
The internet has truly globalised personal finance. In the past,
retail investors could need to rely on making calls to their trading
representatives to buy or sell their investments. Today, all you need is
a good internet connection to utilise any platform offered by providers
around the world.
The downside to this however is that there are many small and obscure
providers offering brokerage services out there. Some of these firms
offer extremely low transaction costs to entice clients to use their
platform.
Yet for asset classes such as CFDs, it is wiser to utilise a
well-established company for trading. This is because these asset
classes require the trader to take a position against the provider, who
would then need to hedge its position in the open market.
A provider that does not hedge itself adequately would face the risk
of making substantial losses. If the losses are too big, the company
could become insolvent. In such instances, traders that have an open
position against the company may suffer a counterparty risk, where the
company is unable to honour the trades they have made.
3. Platform Provided
User experience and availability of tools are key considerations when
selecting a platform. These comprise customisable features and charting
indicators. Other must-haves include stop-loss features and even
automated trading.
4. Mobile Support
In today’s context, being able to use your phones or tablets to
conduct and check on trades is vitally important as people are spending
more time on their phones and constantly have their phones with them
over laptops or desktops.
Before opening an account, check if the provider has an app that
allows you to trade through mobile or tablet devices. If they do, it
would really help you in the long run.
5. Ease Of Opening An Account
In other words, we are looking for the most convenient option most of
the time. A low barrier of entry is something that almost all of us
appreciate. Being able to open an account online saves us the time to
physically head down to the office to sign up.
Likewise, not being required to put up a minimum funding amount to
open an account gives us the flexibility to test drive a platform first,
before deciding if we are comfortable enough to use it for live
trading.
6. Products Available
The variety of products provided by the platform is important. You do
not want to be in a situation where you have to manage multiple trading
accounts simply because each of these platforms do not have all the
products that you would want to trade in.
For example, if you intend to trade in equities, indices and forex
through a CFD to gain the leverage advantage, then you would want to
have a provider that offers all these instruments in their platform,
rather than have one without the other.
Other areas to note include checking if the platform enables you to
trade across a variety of asset classes and geographical markets.
One down side is that one single provider may not offer the most
competitive platform for all products, so we sometimes may have to go
with the option that we’re able to live with.
7. Educational Support
Educational support is one of the most important factor that is
frequently ignored by people and platforms. To have a chance of being
successful in trading, you need to understand what is it that you are
actually doing. Trading, unlike gambling, requires a lot of skills,
knowledge and experience.
Established providers such as IG offer valuable support for their
clients in the form of an educational programme. This programme is
tailored to traders with different levels of expertise, and includes a
series of workshops led by industry experts designed to assist clients
develop their skillset and trading strategy. Topics in these workshops
include forex trading, algorithmic trading and technical analysis.
Choose An Account That Best Suits What You Intend To Do
We believe there is no one right answer when it comes to choosing the
best trading account. Most of this really depends on what is it that
you intend to do. If your intention is to make more frequent trades in
multiple asset classes, then a CFD provider like IG would make sense.
If your intention is to make periodical or one-off investments into
local blue-chip stocks and hold the stocks for a few years without the
need for leveraging your investments, then a standard brokerage account
may be more suitable.
This article was sponsored by IG,
the world’s No.1 CFD provider (by revenue excluding FX, 2015). All
views expressed in the article are the independent opinion of DollarsAndSense.sg
Ref:http://dollarsandsense.sg/7-important-factors-to-consider-when-opening-your-first-trading-account/
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