5 Red Flags to Look for When Shopping Brokerage Accounts

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KEY POINTS

  • Opening a brokerage account is a great way to invest.
  • You want to research brokerage options carefully.
  • You should avoid choosing a certain brokerage account if you spot these red flags. 


Don't open a brokerage account if you spot any of these red flags.

If you want to invest money and build wealth, opening a brokerage account is a smart idea. You will need one to trade stocks, ETFs, mutual funds, and other assets that can help you earn a generous return. 

The good news is, there are a lot of online brokerage firms out there to choose from. But the bad news is, they aren't all good ones. You don't want to end up with the wrong broker -- especially if doing so costs you money -- so be sure to watch for these red flags when deciding where to open your account. 

1. A limited pool of investment

If you've done your research and found an investment you want to buy, the last thing you want is to be thwarted by the fact your brokerage account doesn't offer it. So make sure any broker you use offers a wide selection of the types of assets you're interested in.

For example, many brokerages don't allow you to trade cryptocurrencies. And some have more commission-free ETFs than others. Always check the selection before you sign up for an account to confirm you won't find yourself stuck with too few options.  

2. High fees

Most brokerage accounts charge no commission for trades and don't have account maintenance or inactivity fees. If you spot a brokerage that imposes these added costs, you should steer clear since they can eat into your potential returns. 

3. Poor research and screening tools

You want to be able to easily research investments and find assets you are interested in. So a brokerage firm that doesn't provide you with research or search tools could make it much more difficult for you to become a successful investor.

Make sure you can access the information you are interested in and easily search for the investments you need to help you build a diversified portfolio. 

4. Minimum balance requirements

It's very common these days to find brokerage firms that do not have a high minimum deposit requirement or a high minimum balance requirement. In fact, most will allow you to start trading with just a few dollars. 

If a broker you are looking at requires you to deposit a lot of money, or to keep a lot of money in your account, you may want to walk away. That's true even if you currently meet the requirements. You never know when you might need to take money out and you don't want to be restricted from doing so just to avoid being charged a fee by your broker. 

5. High margin interest rates 

Finally, if you plan to trade on margin, you'll need to compare interest rates. This doesn't matter for everyone, but if you plan to borrow against the value of your stocks to get more money to trade, you don't want to borrow at a high rate and eat away at your potential returns.

By looking for these five red flags, you can be sure to avoid brokerage firms that won't pay off for you in the end. There are plenty of great brokers out there, so there's no reason to settle for one that doesn't meet your needs.

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