Getting an account set up with a broker isn’t difficult, but there are a few more hoops to jump through than there used to be. And that’s no bad thing.
Brokers are now required to ask a few questions to assure themselves that you’ve got your wits about you.
These questions are generally to do with your understanding of risk and margined trading. But there are a few other things you should consider.
Here I’ll cover the 10 things you should know before opening an account …
1. Do you understand leverage and margined trading?
Spread bet firms are required to check that you understand what it means to trade on margin. If you’ve any doubts about this, please check out the Trader’s Bulletin free margined trading course. It doesn’t take long to run though, plus there’s a short test. If you can pass this test (you need to get at least 75%!), you can feel confident that your understanding of margined trading is good enough to answer ‘yes’ to this question.
2. Have you demo traded on this platform?
If you’ve traded before with other brokers, you may feel that this isn’t necessary, but every platform has its own nuances and ways of setting things up. It’s much better to make those stupid school-boy errors on a demo account.
3. Do they have a mobile trading app?
If you need to check your trades on the go, these can be invaluable, but they generally don’t have all the functionality of the desktop website.
Download the app and get familiar with it (I speak as someone who doesn’t bother to download the app until I’m out and about and in a rush to close out a position!)
4. How do their costs compare?
One extra point on spread costs doesn’t sound like a lot, but these really do add up and make it significantly more difficult to turn a profit. Make sure you know what you’re paying in spread costs, and compare those to other platforms.
5. Do they have the markets you’re interested in?
You may have your choice of broker limited if you’re trading more obscure markets.
6. Do they have 24-hour pricing or not?
This is a contentious one. Some brokers will brag about their 24 hour pricing – so you can always get a price on markets, even when they are closed. I have to question the merit of this – these prices are ‘made’ from the futures market, but the method behind creating these prices is pretty opaque. I’m not convinced.
7. What about extra features?
Many of us just want a basic, low-cost broker, who’ll give reliable execution on our trades. But sometimes it’s helpful to have some extras, like auto alerts and OTO bets. If the broker you’re using doesn’t provide what you need. Just shop around.
8. Are you protected?
There’s been a lot of talk recently from traders who are looking at overseas brokers. Be aware that you won’t be covered by the Financial Services Compensation Scheme (which protects your first £85,000) if you’re trading outside the EU.
9. What percentage of people are winning?
Brokers now have to tell us (in the small print at the bottom of their webpages) what percentage of their clients lose money. I can only really speculate about why it’s higher with some brokers than other, but I know they’d love to be able to boast lower rates here than their rivals. (You don’t have to lose money for your broker to make money!)
10. What strategy will I be using?
Of course, the most important thing to know before you open a spread bet account is what your trading strategy is. If you’ve not got a plan for that yet, I hope you’ll find plenty of ideas browsing the Trader’s Bulletin site!