TL;DR: Learn what brokers do, which types exist and what to compare. Start by deciding what you need yourself: active trading or investing for the long term.
Step-by-step guide
- Determine your needs: active trading or investing for the long term
- Compare the fees of 3-5 brokers using their current price lists
- Test trading platforms (many brokers offer a demo)
- Check the broker’s registration with the regulator (AFM, FCA, SEC)
- Read user experiences and the broker’s terms
- Open an account with the required documents (ID, proof of address)
- Fund the account, and consider starting with paper trading
What is a Broker?
Restaurant analogy: Think of a broker like a waiter at a restaurant. You (the customer) want a meal (a stock), but you can’t go into the kitchen yourself. The waiter (broker) takes your order, brings it to the kitchen (the stock exchange) and brings back your meal. You pay a fee (commission) for this service.
What brokers do: Brokers are licensed intermediaries that connect you to stock exchanges. When you click ‘BUY 100 shares of Apple’ in your app, this is what happens behind the scenes:
- Your broker receives your order
- The broker routes it to the exchange or a market maker
- Your buy is matched with someone else’s sell
- The transaction is settled
- Your account is updated
This usually takes milliseconds.
Why you can’t trade without a broker: Exchanges do not let private individuals trade directly. Access requires exchange membership with strict requirements. Brokers have that access and offer it to their clients.
Tip: Brokers make money in three main ways: (1) commissions, (2) Payment for Order Flow, (3) interest on borrowed money. Knowing how a broker earns its money helps you understand which costs apply to your choice.
Full-Service or Discount Broker
Full-service brokers (for example Morgan Stanley, UBS) give personal advice and portfolio management. This usually comes with higher costs, such as a percentage of your assets and fixed fees per order.
Discount brokers (for example Interactive Brokers, Charles Schwab, Fidelity and DEGIRO) are self-directed: you make your own decisions and receive no personal advice. Costs per order are usually lower.
Why this matters: If you place many orders per year, the cost per order adds up. Take an example of 120 orders per year: a fixed fee per order weighs far more than a small fee per order. Use the current price list to calculate what your expected number of orders would cost.
Tip: Do you want advice? Consider a broker for execution plus a separate, independent adviser you pay by the hour. Compare the total cost with that of a full-service broker.
What to Compare When Choosing a Broker
1. Cost structure: Don’t look only at the commission per order. Also check spreads, currency conversion costs, exchange and data fees, interest on loans, and any fixed monthly or yearly fees. You will find current prices on the broker’s own site. Our fact-checked data is in the comparison tool.
2. Platform quality: Test a demo or paper trading account for 1-2 weeks before depositing real money. Look at app stability, real-time quotes, charting and how easy it is to place orders.
3. Research and data: Think of a stock screener, company financial statements and an earnings calendar. Differences between brokers are large. Check the broker’s page to see which tools are available.
4. Account minimums and account costs: These differ per broker and per account type. Check the terms.
5. Regulation and protection: A broker must be regulated by the supervisor in the country where it operates:
- Netherlands/EU: AFM (and the supervisor of the country of establishment)
- UK: FCA (Financial Conduct Authority)
- US: SEC and FINRA
Investor protection: In the US, SIPC covers up to $500,000 in certain cases if a broker fails. In the EU, an investor compensation scheme applies, which differs by country.
Red flags: a broker without a licence in your country, promises of guaranteed returns, pressure to deposit more money, or a broker in a jurisdiction without supervision.
Tip: If a broker is not properly regulated, choose another one. In case of fraud or bankruptcy you could lose your deposit.
Brokers by Profile
Below, brokers are grouped by profile. This is a grouping by characteristics, not a ranking and not advice. Current prices and terms are on each broker’s page and in the comparison tool.
For investors looking for access to US and European markets
DEGIRO and Interactive Brokers give access to several exchanges. Check their price pages for the cost per order.
For active traders looking for extensive tools
Interactive Brokers focuses on access to many markets and professional tools. Its platform has a learning curve.
For US-based investors looking for a full-service retail offering
Fidelity and Charles Schwab offer research tools, retirement accounts and customer service. Check the fee schedule on their pages.
For people who prefer a simple app
Robinhood and Webull are built around a simple mobile app. Check which research tools and order types are available.
For long-term investors looking for ETFs
DEGIRO has a range of ETFs. Also look at the costs of the funds themselves.
For people who trade daily
Pay attention to execution speed, hotkeys and market data. At US brokers the PDT rule applies (see the FAQ).
For people who want crypto next to stocks
Coinbase and Kraken focus on crypto. Crypto costs are often in the spread, so read the fee schedule carefully.
Want to see brokers side by side? Use the comparison tool as a starting point, not as advice.
Tip: You are not locked in forever. Some investors use more than one broker: one for the long term and one for active trading. Check each broker’s registration.
Investing involves risk: you can lose all or part of your deposit. This tutorial is information, not investment advice.
Test yourself
Practice questions to check your understanding, not advice.
According to the tutorial, what does a broker do?
- It connects you to the exchange and forwards your orders
- It sets the price of a share
- It always gives personal investment advice
Show answer
Answer:A. It connects you to the exchange and forwards your orders
A broker is a licensed intermediary that sends your order to the exchange or a market maker. Personal advice only comes with full-service brokers.
What should you look at when comparing a broker's costs, according to the tutorial?
- Only the commission per order
- Also spreads, currency costs, exchange and data fees and interest on loans
- Only the fixed monthly costs
Show answer
Answer:B. Also spreads, currency costs, exchange and data fees and interest on loans
The tutorial says not to look only at the commission per order, but also at spreads, currency costs, exchange and data fees, interest and fixed costs.
Which supervisor does the tutorial name for brokers in the Netherlands and the EU?
- The FCA
- The AFM
- The SEC
Show answer
Answer:B. The AFM
For the Netherlands/EU the tutorial names the AFM (and the supervisor of the country of establishment). The FCA belongs to the United Kingdom and the SEC to the United States.
According to the tutorial, what is a warning sign for a broker?
- A broker that offers a demo environment
- A broker with a simple mobile app
- A broker that promises returns and pressures you to deposit more money
Show answer
Answer:C. A broker that promises returns and pressures you to deposit more money
Warning signs include: no licence in your country, promises about returns, pressure to deposit more, or no supervision. A demo is actually useful for testing a platform.
Frequently asked questions
- What is the difference between a broker and a trading platform?
- A broker is the company (for example Interactive Brokers or DEGIRO). A trading platform is the software you use to place orders (such as MetaTrader or the broker's app). Some brokers build their own platform, others use a third-party platform. Analogy: the broker is the bank, the platform is that bank's app. You need both.
- How do brokers make money if they charge no commission per order?
- No broker works without income. Brokers that charge no commission per order earn money in other ways, for example: (1) **Payment for Order Flow (PFOF):** they route your order to a market maker that pays for it. This is allowed in the US, but not in the UK or the EU. (2) **Interest on loans:** if you borrow money to trade. (3) **Interest on cash:** the broker keeps part of the interest on your idle cash. (4) **Paid subscriptions** for extra features. (5) **Crypto spreads:** the difference between the buy and sell price. This is why you should always read the full price list, not just the commission per order.
- What happens to my money if my broker goes bankrupt?
- At a regulated broker, your securities are held in custody, separate from the broker's own assets. There are also investor compensation schemes. In the US, SIPC covers up to $500,000 per account in certain cases, including up to $250,000 in cash. In the EU, an investor compensation scheme applies; in the Netherlands it pays up to €20,000 per investor in certain cases. Market losses are not covered. Check that the broker is registered with the regulator in the country where it operates (in the Netherlands the AFM) and read the terms of the scheme that applies to your account.
- What is the Pattern Day Trader (PDT) rule and does it apply to me?
- The PDT rule is a US rule for accounts at US brokers: if you make four or more day trades within five business days, you must keep a minimum balance of $25,000. A day trade means buying and selling (or shorting and covering) the same security on the same day. The rule does not apply to brokers under European supervision. Always check the terms of your own broker.
- Should I use one broker or multiple brokers?
- That depends on what you want to do. Some investors use several brokers for different purposes, for example one for long-term holdings, one for active trading and one for crypto. Benefits: a second account as a backup and a wider choice of products. Drawbacks: more records to keep for your tax return and more accounts to manage. For beginners it is often simpler to start with one broker and add a second later if you miss a feature.