Broker: how to choose it and how to work with it?

how to choose it and how to work with it

Already figured out how the exchange worksnovice investor , and are you ready to become a  ? We figure out why you need a broker, how to choose one and what will happen to your money if he suddenly loses his license.

Who is a broker and what does he do?

If you decide to trade on the stock exchange, you have two options. The first is to trust the manager. This method is suitable for those who do not have the time or desire to invest on their own. The second option is to do everything yourself: develop a strategy for investing money and take responsibility for transactions.

However, just coming to the exchange and trading on your own will not work. You will need a broker - an intermediary between the investor and the issuer, that is, between you and the company whose securities you plan to buy. A broker is a company that has a license to operate on the stock market and that has the right to deal in securities for an investor.

How to interact with a broker?

1. Sign a contract with a broker. Read the terms of the brokerage agreement. As a rule, brokers publish a standard contract with tariffs on their website. If the rates and other conditions suit you, you can conclude an agreement at the broker's office or send notarized documents by mail. It is also possible to draw up an agreement using remote identification .
2. Open an account with a broker and deposit money into it. After that, the broker will be able to buy securities for you. It is most profitable to open an individual investment account (IIA) , which will allow you to save on taxes.
3. Open a securities account. The securities you buy must be accounted for somewhere. To do this, you need to open a depo account (an account for recording securities) with the depository. The depository may be a separate company that is not related to your broker. But often, in addition to a brokerage license, a broker also has a depository one and it combines these two functions.
4. Now you are ready to trade on the stock exchange - you can give instructions to the broker to buy and sell securities. This can be done by phone, online - using a special program - a trading terminal or through the broker's mobile application.
5. The broker, on your behalf , performs operations on the stock market . In addition to the money for buying securities, a commission is deducted from the brokerage account - a fee for the fact that the broker helps you make these transactions.
6. With the help of a broker, you can withdraw money to your bank account. They may also charge a fee for this. The broker will calculate and withhold tax on your income. For residents of the Russian Federation (that is, for people who stay on the territory of the Russian Federation for at least 183 days during the year), it is 13%, for non-residents - 30%.

In addition to the brokerage commission, you can expect other expenses for each transaction. For example, increased taxes when investing in foreign securities.

Before accepting an order for an operation, the broker is obliged to warn you of all possible costs.

The intermediary must also inform you of the current bid and ask prices for the selected financial instruments. Some securities may turn out to be illiquid - that is, it will be difficult to find a buyer for them at all.

The broker himself chooses the way how to provide you with data on additional costs. It could just be a link to a page on his site. Make sure beforehand that the information is presented clearly and you will be able to quickly understand it.

If the broker does not report all the nuances and you incur losses because of this, you will have the right to demand compensation for losses, including through the courts.

There are situations when it is important to make transactions very quickly. Then you can choose not to receive additional cost alerts so that the broker will immediately execute your orders. But in this case, it will not be possible to present a claim to the intermediary due to losses that will be associated with a lack of information.

How to choose a broker?

It is important to remember that the money in your brokerage account is not covered by  the deposit insurance scheme , unlike bank deposits. Therefore, your task is to find the most reliable broker.

What to study and what to check when choosing a broker:

• License
  First of all, check in the  directory whether the broker has a license of a professional participant in the securities market. If not, they are illegal.
  
  Make sure that the name of the company in the register exactly matches the one that the broker specifies in the contract. It may turn out that the broker offers you to sign an agreement with a "partner" foreign company, which has almost the same name. Accepting such an offer is very risky. If you conclude an agreement with a foreign broker and he violates your rights, you will have to defend your interests in the country where he is registered. The Russian regulator, law enforcement agencies and the court will not be able to help you.
  
  In the Yandex and Mail.ru search engines, the official websites of all financial intermediaries licensed by the Bank of Russia are marked with a check mark in a blue circle. If the broker's website does not have such a mark, these are scammers.
  
  
• Financial indicators
  Explore the list of the largest brokers . Large trading volumes do not guarantee you complete peace of mind, but this means that the company has many clients and they trust it with significant capital.
  
  
• Reputation
  Study the broker's website, read customer reviews on the Internet. Pay attention to the history of the company - whether its name was associated with financial scandals. Search the financial news - suddenly you hear something interesting about your potential broker.
  
  
• Risks
  Before signing an agreement with a broker, read the risk notice. This document details how you can lose money when trading in the securities market.
  
  
• Terms
  Carefully study the terms of the brokerage service. Pay attention to the details: commissions, terms for transferring money, interest on loans - if you plan to buy securities at the expense of a broker. Find out if the broker can use your money and securities for their own purposes. Find out how much the commissions will increase if you forbid him from doing this.

What else to look for when choosing a broker?

Software

If you plan to trade via the Internet, ask your broker what is needed for this. Is it possible to make transactions through the site without installing additional software, or will you have to download a special program to your computer - a trading terminal. Study the system requirements, find out if it is technically possible to install a trading terminal on your computer.

If you are going to trade via smartphone or tablet, check with the broker if this is possible. Check if this mobile application is suitable for your gadgets and if it is paid.

Voice orders

This is telephone trading. If you don't have internet, you can call and instruct the broker to complete the trade. Evaluate in advance if you need this feature. They may charge an additional fee for it, and not all brokers have it.

Education

If you decide to trade on your own, you will have to learn. Some brokers offer free training: webinars, tutorial videos, step-by-step instructions. You usually get access to them if you become a client and open a brokerage account. There are paid courses, accompaniment by an experienced mentor, financial advice - explore all the possibilities that your potential broker offers.

It's good if the broker's trading program has a demo mode. You register on the broker's website and receive by mail links to download the trading program and keys (digital security files) for installation. Install the program and try yourself as an investor without opening an account. You will trade not for real money, but in test mode, in order to understand without unnecessary risk how exchange trading works.

Commission

All brokers charge a commission for their services. It can be a commission for each transaction or a monthly subscription fee. Many brokers have a minimum amount of remuneration per day or per month (for example, at least 35 rubles per day). The exchange also takes its own percentage for conducting transactions - check whether it is included in the commission declared by the broker, or you will have to pay more.

At the start of an investor's career, while you do not know the volume and number of transactions, it is difficult to determine all the needs and choose the optimal rate. Do not look for a broker with the lowest commissions, it is better to focus on a reliable intermediary, and the tariff can be changed if it does not fit.

The contract with the broker is also not a lifetime contract, you can always change the broker if it does not suit you.

What to do if the broker has lost its license?

Suppose that you entered into an agreement with a broker, transferred money to him, bought securities, and after some time the Bank of Russia revoked his license. Or the depository where you keep your securities has lost its license.

The Securities Market Law protects your assets, but not completely. Much depends on how much money you hold in the broker's account and what kind of broker it is.

If the broker is a bank, your money ended up in the "common cash" - mixed with the money of other clients and the bank itself. You can return them only at the end of the lengthy bankruptcy procedure of the organization, and not the fact that completely.

If the broker is not a bank, then he keeps the money of all clients in a special account, separate from his own. During the bankruptcy proceedings, the money from this account cannot be used to pay off the debts of the broker. In case of license revocation, all money on this account is distributed among the broker's clients. It will take some time, but you won't have to wait for the bankruptcy to end.

It is important to understand that if a broker withdraws part of the money from a special account to his own account in order to carry out his operations, then these funds will not be returned. The money that remained on a special account will be divided among all clients in proportion to the amounts that they kept there.

With securities it is easier - they are listed exactly for you. If the depositary goes bankrupt, your securities will not be able to collect to pay off his debts. But again, it may turn out that the broker used part of your securities for his own operations. If the depository and the broker are one organization and it went bankrupt, then the securities can also be missing. That is why you need to choose a broker very carefully.

The law requires a broker or depository that has lost its license to immediately stop all operations (except for fulfilling obligations to clients) and ensure the safety of clients' money and securities. Then they are required to inform clients about the revocation of the license within three days and offer them to take the assets - money and / or securities.

If the broker is left without a license, you need to:

1. Withdraw your money from the broker's account to your bank account as soon as possible.
2. Make sure you have a broker's report with information about the date of purchase and the value of the securities. If there is no such report, request it again. Otherwise, when you sell securities through a new broker, income tax will be withheld from you again.

If the depository has lost its license, follow a similar scenario - transfer your securities to another depository. Then they can be sold on the stock exchange by concluding an agreement with another broker.

Another thing is if it turned out that the broker is engaged in fraud with your money or securities. In this case, contact the police.

How to reduce the risk when working with a broker?

Protect money

Generally, the broker can use your money to their advantage. If the broker is a bank, then he has the right to do this by law . If the broker is not a bank, then he most often includes a clause in the contract that allows him to transfer your money to his account.

As long as the broker is doing well, there is nothing dangerous about it. He lends your money to other clients for a short time, receives interest for this - and thanks to this, he can reduce your fees for his services.

But if the broker goes bankrupt, then you can lose some of the money - the law on the securities market does not apply to funds that are withdrawn from the client account to the broker's account. And in the case of a broker bank, there is no separate client account at all - your money immediately goes to the bank account.

Therefore, the main recommendation is not to keep money in a brokerage account for a long time .

Invest them in securities or withdraw them to your bank account. First, interest can accrue on a bank account. And secondly, the money on the accounts and deposits of individuals and individual entrepreneurs are insured by the state. In case of problems with the bank, you automatically get the right to pay insurance compensation up to 1.4 million rubles.

Another reliable way to protect money is to open a separate (also called segregated) account. And at the same time, write in the contract that you prohibit the broker from using your money. If the broker's license is revoked, you can withdraw all the money from your personal account without the slightest delay.

But the fees for maintaining an individual account are much higher than for maintaining a common one. They can be so large that your return on risky operations in the stock market may be lower than the interest on virtually risk-free bank deposits.

Protect securities

The broker can use your securities if you allow him to do so. Such a clause is often prescribed in a brokerage service agreement. In this case, the broker is obliged to return the securities at your first request. And if you want to sell them, then he must immediately execute this order and credit the proceeds from the sale to your account.

But even under such conditions, you are at risk. If a broker borrows your securities and goes bankrupt, there is a high probability that he will not be able to return them.

It is also worth considering that shares can pay dividends, and bonds can pay coupon income. And when the issuing companies make a list of recipients of such payments, it is important who will be the holder of the securities at that moment. If at this time the securities are with the broker, then not you, but the broker will be included in the list. As a rule, under the contract, the broker is obliged to transfer dividends or coupon income to you. But there is a risk that he won't.

If you are not ready for these risks, you can not give the broker the right to use your papers. But, most likely, this will increase the cost of brokerage services.

And even if you do not give the broker permission to use your securities, he will still have access to the securities that are on your trading depo account.

Securities are credited to the  depo trading account when you buy them, and debited from it when you sell them. These transactions you make through a broker. Therefore, the broker always has the right to send instructions to the depository for crediting and debiting the securities that are on your trading depo account.

Securities that you do not plan to sell yet, you can keep on the  main depo account . However, you have the right not to give the broker permission to dispose of securities in this account.

If the securities are on the main depo account and you want to sell them, you need to give two instructions at once - transfer the securities from the main depo account to the trading one and sell them. And if you want to buy securities and hold them for some time, you can simultaneously give two instructions - to buy and transfer these securities to the main depo account.

If you do not plan to actively trade in the stock market, but want to invest in stocks and hold them for at least a couple of years, then you can use another option. You can open a personal account in the register of shareholders maintained by the registrar company. And transfer your securities to this account. Without your permission, the broker does not have access to your personal account.

But, most likely, you will have to pay additionally to the depository for transferring securities to a personal account, as well as to the registrar for opening and maintaining such an account. Specify the cost of these services in advance and decide whether you are ready for these expenses. Keep in mind that the registrar may also have their license revoked. And registrars also do not participate in the state deposit insurance system.

Keep track of your accounts

Investments cannot be left unattended. Follow the financial news, periodically request statements on the status of your brokerage and custody accounts.