What Is a Broker and How to Choose One
Understand what brokers do, the different types available, and what to look for when choosing one. A practical guide to finding the right broker for your investing.
What Is a Broker and How to Choose One
Key Takeaways
- A broker executes your trades and holds your shares, acting as the intermediary between you and stock exchanges; most modern brokers are reliable, and differences matter less than just getting started.
- Online brokers with low or zero fees are the right choice for most self-directed investors; full-service brokers and robo-advisors exist for different preferences and budgets.
- Look for regulation by respected authorities, reasonable fees, broad investment selection, usable apps, and responsive support; don’t get stuck researching brokers for weeks when any regulated broker with low fees will work fine.
What Brokers Actually Do
You can’t buy stocks directly from an exchange. You need a broker to act as an intermediary.
When you click buy, your broker sends that order to an exchange and finds someone willing to sell. They complete the transaction, then hold the shares in your account. You own the shares legally. They’re yours. Your broker simply holds them on your behalf, which makes trading faster than if you had physical paper certificates.
Brokers also provide the infrastructure you use daily. The app on your phone, the website on your computer, research tools, price quotes, your portfolio dashboard. All of that is the broker’s service. They collect fees to cover this infrastructure and make a profit.
Types of Brokers
Online brokers are what most people use. You manage everything yourself through apps and websites. DEGIRO, Trade Republic, Interactive Brokers, Fidelity, Schwab. Fees are low or zero. You make all decisions. You click buy or sell. You own the consequences.
Full-service brokers offer personalized advice and portfolio management. A person advises you. They decide what to buy and when. This costs significantly more. Mostly used by wealthy clients or people who want someone else handling decisions.
Robo-advisors are the middle ground. They automatically invest based on your goals and risk tolerance. You answer questions about how much risk you want and your timeline. The algorithm suggests a portfolio and automatically rebalances it. Cheaper than full-service, more hands-off than self-directed. Useful for people who want to invest but don’t want to actively manage.
If you’re managing your own portfolio, an online broker is almost always the right choice. You keep the most control and pay the lowest costs.
Competition has driven fees down dramatically. Features that cost hundreds per year a decade ago are now free or nearly free. This is a good time to be an investor.
What to Look For
Regulation is paramount. Use brokers regulated by respected authorities. In Germany, that’s BaFin. In the Netherlands, AFM. In the UK, FCA. In the US, SEC and FINRA. Regulation means rules protect you if something goes wrong.
Fees matter, especially long-term. Many brokers offer commission-free trading now. But watch for hidden costs. Currency conversion fees if you buy foreign stocks can be sneaky. Exchange fees sometimes bury themselves in confirmations. Ask directly or read reviews.
Investment selection. Make sure they have what you want to buy. Most online brokers have broad stock and ETF coverage. Check if you need specific products like options or emerging market funds.
Usability. Try the app before fully committing. A confusing interface makes simple things annoying. You’ll use this tool regularly. A confusing platform leads to mistakes. A smooth one makes investing friction-free.
Support. When something goes wrong, you need responsive help in your language. Test it before you commit. Email a question and see how fast they respond. If there’s a problem during a market crisis, you’ll be glad you know their support is reliable.
Security. Good brokers use encryption and two-factor authentication. Your account shouldn’t be accessible to someone who knows your email address.
Common Brokers
In Europe, DEGIRO, Trade Republic, and Interactive Brokers are popular. In the US, Fidelity, Vanguard, Schwab, and Robinhood serve many investors. Each has strengths in different areas.
Mentioning these isn’t a recommendation. Do your own research. Check reviews, compare fees for what you plan to buy, test the apps if possible.
The honest truth: there’s no single best broker. It depends on what you’re buying, where you live, and how you prefer to interact with your money. A day trader has different needs than someone investing for retirement. An American has different options than a European.
Open an Account
The process is straightforward. Takes 15 to 30 minutes online. You’ll provide personal information, verify your identity by uploading documents (usually a photo ID and proof of address), and link a bank account.
Some brokers take a few days to verify you. Once approved, you can deposit money and start immediately.
Tax reporting varies by country. Many brokers provide year-end summaries showing gains, losses, and dividends. Some automatically withhold taxes on dividend payments. Some don’t. Know your local obligations before you start. If you owe taxes, your country will eventually ask for them.
Common Mistakes to Avoid
Don’t get stuck researching brokers for weeks. Pick a regulated one with reasonable fees and start. You can switch later if needed. The cost of waiting outweighs any broker fee differences.
Don’t assume expensive brokers are better. Full-service brokers charge more because they offer personalized advice. If you don’t want advice, you’re paying for something you don’t need.
Don’t chase exotic features. Most investors need basic stock and ETF trading. Avoid brokers trying to sell you options, cryptocurrency, or complex derivatives unless you specifically want those.
When to Switch
You can switch brokers if you find a better fit. Most brokers can transfer your holdings to another broker. The process takes days to weeks but is normally straightforward.
Don’t switch because of minor fee differences. Switching costs time and carries small risks of things going wrong during the transfer. Only switch if there’s a meaningful gap or if your broker starts charging fees you don’t want to pay.
The right broker is one you’ll actually use and trust. Spend a reasonable amount of time choosing, but not so much that you delay starting. Opening an account and depositing money is the first step. Everything else flows from that. With Gallio’s briefings and goal-based tracking, once you’ve chosen your broker and opened your account, you can focus on the investing strategy rather than the mechanics of execution.
What Is a Broker and How to Choose One
Key Takeaways
- A broker executes your trades and holds your shares, acting as the intermediary between you and stock exchanges; most modern brokers are reliable, and differences matter less than just getting started.
- Online brokers with low or zero fees are the right choice for most self-directed investors; full-service brokers and robo-advisors exist for different preferences and budgets.
- Look for regulation by respected authorities, reasonable fees, broad investment selection, usable apps, and responsive support; don’t get stuck researching brokers for weeks when any regulated broker with low fees will work fine.
What Brokers Actually Do
You can’t buy stocks directly from an exchange. You need a broker to act as an intermediary.
When you click buy, your broker sends that order to an exchange and finds someone willing to sell. They complete the transaction, then hold the shares in your account. You own the shares legally. They’re yours. Your broker simply holds them on your behalf, which makes trading faster than if you had physical paper certificates.
Brokers also provide the infrastructure you use daily. The app on your phone, the website on your computer, research tools, price quotes, your portfolio dashboard. All of that is the broker’s service. They collect fees to cover this infrastructure and make a profit.
Types of Brokers
Online brokers are what most people use. You manage everything yourself through apps and websites. DEGIRO, Trade Republic, Interactive Brokers, Fidelity, Schwab. Fees are low or zero. You make all decisions. You click buy or sell. You own the consequences.
Full-service brokers offer personalized advice and portfolio management. A person advises you. They decide what to buy and when. This costs significantly more. Mostly used by wealthy clients or people who want someone else handling decisions.
Robo-advisors are the middle ground. They automatically invest based on your goals and risk tolerance. You answer questions about how much risk you want and your timeline. The algorithm suggests a portfolio and automatically rebalances it. Cheaper than full-service, more hands-off than self-directed. Useful for people who want to invest but don’t want to actively manage.
If you’re managing your own portfolio, an online broker is almost always the right choice. You keep the most control and pay the lowest costs.
Competition has driven fees down dramatically. Features that cost hundreds per year a decade ago are now free or nearly free. This is a good time to be an investor.
What to Look For
Regulation is paramount. Use brokers regulated by respected authorities. In Germany, that’s BaFin. In the Netherlands, AFM. In the UK, FCA. In the US, SEC and FINRA. Regulation means rules protect you if something goes wrong.
Fees matter, especially long-term. Many brokers offer commission-free trading now. But watch for hidden costs. Currency conversion fees if you buy foreign stocks can be sneaky. Exchange fees sometimes bury themselves in confirmations. Ask directly or read reviews.
Investment selection. Make sure they have what you want to buy. Most online brokers have broad stock and ETF coverage. Check if you need specific products like options or emerging market funds.
Usability. Try the app before fully committing. A confusing interface makes simple things annoying. You’ll use this tool regularly. A confusing platform leads to mistakes. A smooth one makes investing friction-free.
Support. When something goes wrong, you need responsive help in your language. Test it before you commit. Email a question and see how fast they respond. If there’s a problem during a market crisis, you’ll be glad you know their support is reliable.
Security. Good brokers use encryption and two-factor authentication. Your account shouldn’t be accessible to someone who knows your email address.
Common Brokers
In Europe, DEGIRO, Trade Republic, and Interactive Brokers are popular. In the US, Fidelity, Vanguard, Schwab, and Robinhood serve many investors. Each has strengths in different areas.
Mentioning these isn’t a recommendation. Do your own research. Check reviews, compare fees for what you plan to buy, test the apps if possible.
The honest truth: there’s no single best broker. It depends on what you’re buying, where you live, and how you prefer to interact with your money. A day trader has different needs than someone investing for retirement. An American has different options than a European.
Open an Account
The process is straightforward. Takes 15 to 30 minutes online. You’ll provide personal information, verify your identity by uploading documents (usually a photo ID and proof of address), and link a bank account.
Some brokers take a few days to verify you. Once approved, you can deposit money and start immediately.
Tax reporting varies by country. Many brokers provide year-end summaries showing gains, losses, and dividends. Some automatically withhold taxes on dividend payments. Some don’t. Know your local obligations before you start. If you owe taxes, your country will eventually ask for them.
Common Mistakes to Avoid
Don’t get stuck researching brokers for weeks. Pick a regulated one with reasonable fees and start. You can switch later if needed. The cost of waiting outweighs any broker fee differences.
Don’t assume expensive brokers are better. Full-service brokers charge more because they offer personalized advice. If you don’t want advice, you’re paying for something you don’t need.
Don’t chase exotic features. Most investors need basic stock and ETF trading. Avoid brokers trying to sell you options, cryptocurrency, or complex derivatives unless you specifically want those.
When to Switch
You can switch brokers if you find a better fit. Most brokers can transfer your holdings to another broker. The process takes days to weeks but is normally straightforward.
Don’t switch because of minor fee differences. Switching costs time and carries small risks of things going wrong during the transfer. Only switch if there’s a meaningful gap or if your broker starts charging fees you don’t want to pay.
The right broker is one you’ll actually use and trust. Spend a reasonable amount of time choosing, but not so much that you delay starting. Opening an account and depositing money is the first step. Everything else flows from that. With Gallio’s briefings and goal-based tracking, once you’ve chosen your broker and opened your account, you can focus on the investing strategy rather than the mechanics of execution.