Saturday, October 3, 2009

Weekend Read - How to choose a broker - What you will never read anywhere else

How to choose a broker

India is fast becoming financial hub of the world. From biggies like sharekhan, icici to local players, every brokerage house is vying to

get a share of the trader's pie. In this article i try and present some guidelines on how to chose a broker depending on where you are in your trading career.

Many readers would have read articles on how to chose a broker. But what i am going to pen below is all amassed from my trading career.

So it will be unique and never heard before.

Trading N00b

Welcome to the wonderful world of financial markets. The fresh faces. These are favourites of any brokerage house.

Some of them dont even research on brokerages and just call up one based on recommendation from a friend or colleague.

They usually end up getting the worst deals as far as brokerages go.

Here is what you need to if you are starting out in the world of trading.

1) Idenifty the segment you want to trade. (Cash, Futures, Commodities etc).

2) Call up atleast 3 different brokerages and ask for their brokerage.

3) Bargain hard. It is a myth that your brokerage will be proportional to the volumes you generate for the broker.

It is just a ploy used by the broker to somehow make low brokerage not accessible to you.

4) As part of the bargain, suggest that the broker may charge you higher rate for a segment you know you wont be trading in

in exchange for a lower brokerage for the segment you know you will be trading in. A no-brainer huh!!!!! This always works.

5) As a starter, do not sign up for brokerage package deposit or for that matter any schemes. Be satisified and insist on getting the plain vanilla


6) If you are a student of technical analyis or want to use online trading software, never signup without a trial. Most brokerages give you a trial user name

and password which you can use to see their trading platform during live market hours.

7) Most brokerage websites go for a toss when there is huge volatility. Make sure you have offline dealer assigned to you and you have all his contact details

including mobile number.

Experienced Trader -- However regularly on the losing side

In any trader's life comes a period, when whatever he does, he loses money in the market.

This phase is inevitable the career of any trader. Successful traders are the ones who go through this phase and come out unscathed (lesser erotion of capital

compared to lessons learnt from trading).

How to chose a broker when you are in this stage?

1) Get the cheapest available broker. Keep calling till you get the best deal possible.

2) Reject offers for exposure. If possible pick a broker who doesn't give you exposure at all.

You dont want to have big exposure when your trading system is not working.

3) Get an auditor and get all your losses accounted and submitted while submitting tax returns.

Many traders happily pay tax when they make profit. But they do not submit negative returns just because it affects their ego.

You can carry forward your losses to the next year, by which time,hopefully you would have made positive returns. Then the gains can be offset

against the losses you made . Lesser tax to pay my readers. Ain't that something !!!!!!!!!!!!!!!!!!!!!

Experienced and Winning Trader

1) Once you have reached this stage, brokerage will become immaterial to you. Most brokerages will by default offer you their lowest possible


2) What you need at this stage is relationship with broker. Your risk may be larger compared to the two sections described above.

Concentrate on having a personal relationship manager. You should try and negotaite for a dealer who is solely dedicated for you

and accessible at all times.

3) All brokerages love consistent winners. They will give you sponosored holidays, accountants who will do all your taxes for you etc. etc .The perk list

is too long.


Irrespective of what stage are you in your trading career, there is always a good deal to be had when it comes to brokers and brokerages.

Sometimes, all it takes is for you to ASK.

---Jerry (

1 comment:

Anonymous said...

well said bro... :-)explained perfectly...

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