How to Choose a Broker for Stock Market Trading
How to Choose a Broker for Stock Market Trading
Compared to American brokers, sub-brokers have a number of advantages for certain types of traders: active traders and beginners with limited capital.
In this article, we will look at the main advantages of sub-brokers in the American stock market, using the example of the sub-broker Fondexx.
A Lower Deposit Is Required to Start Trading
To open a margin account with an American broker, a minimum of $25,000 is required, as regulated by the financial regulator FINRA. Many people who are just starting to trade or invest may not want to commit this amount. If you have just started to get interested in stock trading and are not ready for large capital investments, choose to work through a sub-broker. For example, through Fondexx, you can start trading stocks with a deposit of just $700.
How is this possible?
Fondexx has an account with a broker that meets the margin requirements set by FINRA.
Low Trading Commissions
Commissions are lower when trading through a sub-broker because the sub-broker executes a large number of trades as a client of the broker. The more trades the sub-broker executes, the lower their commission. Thus, Fondexx, as a sub-broker, can offer lower commissions to its clients.
If you trade directly through a broker, you will pay higher commissions. This happens because the retail client's trading volume is much smaller than the sub-broker’s trading volume.
Affordable Trading Platform
Along with professional platforms like Sterling and Lightspeed, Fondexx has its own developed platforms – called RT and Alpha Trader Pro. For comparison, Sterling costs $145 per month, while RT or Alpha costs $50 per month.
If you are a beginner trader, it will be cheaper to trade using RT or Alpha. RT and Alpha are also simpler, easy to use, and don't take up much time. Professional traders can also use RT or Alpha for complex strategies.
Higher Buying Power (BP)
According to rules established by regulatory bodies, American brokers are only allowed to offer leverage of 1:4 for individual accounts and 1:6 for Portfolio Margin accounts. In this case, 4 or 6 is the factor by which the client's deposit amount will increase. As a client of a broker, Fondexx can use its own funds to increase its clients' buying power – up to 1:50. Fondexx also takes on all the risks associated with this.
Why do clients need higher buying power?
If you have a small deposit (e.g., $700), your trading options are seriously limited. You won't be able to trade the most well-known and volatile companies, nor use most strategies. With leverage, you have more money under management, and therefore more opportunities.
Fewer Legal Complications
Opening an account with an American broker can be quite difficult, especially if you are not a resident of the United States. Complications may arise for various reasons: the required deposit size is too high, expensive bank transfers to the broker, and a complex tax system. Often, brokers in the U.S. simply refuse to open accounts for residents of CIS countries. A regional sub-broker simplifies this process for non-American residents by providing the necessary assistance.