Dubai: Online investment platforms have exploded in popularity over the past few years, offering easy entry to any stock market worldwide. But how do they make investing easy for beginners? How do you pick the best one to learn the art of trading and making your money grow?
“Online platforms have wiped away what was once widely considered to be an overwhelming process of approaching an investment firm and using their once expensive services,” said Mohammed Shaan, a UAE-based wealth advisor.
Are online platforms cost effective?
“Now, not only have most investment firms taken their investment expertise online by building free-to-use and paid trading apps, but such platforms are often considered to be far cheaper to use, meaning more of your money gets to your investment of choice.”
However, Shaan and Zubair Shakeel, another UAE-based investment advisor, agree that the ease that comes with using an online investment platform in the comfort of your own home, and the lesser costs that come with it, rarely affects a newbie’s first steps when starting out as an investor.
“Investing primarily involves first understanding what type of investments would suit your financial goals, and then often times learning by investing your own money instead of paying someone else to do it because the truth is no one cares as much about your money as you!” said Shakeel.
Checklist to picking an online platform
When it comes to picking a platform to trade, it’s always simpler when you have a checklist on how to pick the right broker! This guide does just that, walking you through what all one should keep in mind.
“Some investors are willing to pay higher trade commissions for a state-of-the-art platform, while others count costs above all else. Irrespective of the platform you choose, an apt platform for you will depend on whether you plan to invest for the short or long term,” added Shaan.
Before we elaborate further with a checklist to help you find the best online broker for you, here is a brief reminder for investors in the UAE.
DFM also provides a regularly updated list ranking top brokers in the region. For users in the UAE, while ADSS does not charge a commission for buying and selling stocks, several platforms like Plus500, Forex.com and Oanda charge comparatively lower fees.
Links here: https://www.dfm.ae/members/brokers, https://www.dfm.ae/members/brokers-ranking
Brief checklist
Now let’s briefly go through a number of important factors to consider when picking an online trading brokerage and to know whether your preferred online brokers are reputed enough.
Check if your online broker has a history of at least 2 years.
Check whether your online broker has a reasonable sized customer support desk consisting of at least a 15-member strong team.
Does the online broker fall under regulation from a jurisdiction that can hold a broker responsible for its misgivings; or at best play an arbitration role in case of bigger disputes.
Check if your online broker has the ability to get deposits and withdrawals processed within 2 to 3 days. This is important when withdrawing funds.
Does your online broker have an international presence in multiple countries. This includes local seminar presentations and training.
Make sure your online broker can hire people from various locations in the world who can better communicate in your local language.
It is not essential that your brokerage is local but they must have regulation from a Tier 1 reputable country. In fact the brokers international regulation could be more reputable than your local region.
When deciding to trade and find a suitable United Arab Emirates broker if you wish your broker to be 100 per cent local check they are governed and regulated by: The Dubai Financial Services Authority, Abu Dhabi Securities Exchange (ADX), Dubai Financial Market (DFM), and the Central Bank of the United Arab Emirates.
Now that we have covered a quick and basic checklist, let’s go a bit further in detail of what you should check when choosing a broker.
“Broadly speaking, to evaluate brokers, you should primarily look at account minimum, account fees, commissions, promotions and last but not the least – what is you trading style and what platform best suits your style,” added Shakeel.
Know your commissions
“Trading platforms or brokers generally offer a similar menu of investment options: Individual stocks, options, mutual funds, exchange-traded funds, and bonds. Some will also offer access to futures trading and forex (currency) trading.
“The investments offered by the brokerage will decide two things for you – whether your investment needs will be satisfied, and how much you’ll pay in commissions.”
Options: Options trades often incur the stock trade commission plus a per-contract fee, which usually runs between $0.15 to $1.50 (55 fils to Dh5.5). Some brokers charge only a commission or only a contract fee, and this largely depends on your trading volume.
Mutual funds: Some brokers charge a fee to purchase mutual funds. Transaction costs are typically charged as a flat fee that can range from $10 to $75 (Dh37 to Dh275). You can limit mutual fund transaction costs or avoid them completely by selecting a broker that offers no-transaction-fee mutual funds like Vanguard or TD Ameritrade but check if you can avail those platforms. (Mutual funds also carry internal fees called expense ratios. These are charged not by the broker, but by the fund itself.)
ETFs: ETFs trade like a stock and are purchased for a share price, so they are often subject to the broker’s stock trade commission. But many brokers also offer a list of commission-free ETFs. If you plan to invest in ETFs, you should look for one of these brokers. Vanguard’s VWRD stock exchange-traded fund (ETF) and iShares IGLO bond ETF could be all you need, diversifying your money across 2,900 global stocks and 700 global bonds through just two products.
Bonds: You can purchase bond mutual funds and ETFs at no charge by using no-transaction-fee mutual funds and commission-free ETFs. Brokers may charge a fee to purchase individual bonds, with a minimum and maximum charge.
Beware of account fees
“You may not be able to avoid account fees completely, but you can certainly minimise them,” added Shaan. “Most brokers will charge a fee for transferring out funds or closing your account. If you’re transferring to another broker, that new portal may offer to reimburse your fees to a limit.
“Most other fees can be sidestepped by simply choosing a broker who doesn’t charge them, or by opting out of services that cost extra. Common fees to watch out for include annual fees, inactivity fees, trading platform subscriptions and extra charges for research or data.”
Close eye on account minimums
You can find highly ranked brokers with no account minimum on the DFM website, as indicated above. But some brokers do require a minimum initial investment, and it can skew toward $500 (Dh 1,836) or more.
Some funds providing lower minimum options were Forex.com, XM.com, FXTM, eToro, with minimums varying between from $50 (Dh183.65), $100 (Dh367.30) and $200 (Dh734.60).
“Many mutual funds also require similar minimum investments, which means even if you’re able to open a brokerage account with a small amount of money, it could be a struggle to actually invest it,” said Shakeel.
“It isn’t wise to choose a broker solely on its promotional offer — a high commission over the long term could easily wipe out any initial bonus or savings — but if you’re stuck between two options, a promotion may sway you one way or the other,” added Shakeel.
Personalised trading style, tech needs
“If you’re a beginner investor, you probably won’t need an advanced trading platform. But you may want an education and a little handholding. This could include videos and tutorials on the broker’s website, or in-person seminars at branches,” said Shaan.
“Many brokers offer these services free to account holders. Many brokers offer educational resources for new investors. Active traders, on the other hand, will want to look for a brokerage that supports that kind of frequency.
“That includes studying a broker’s trading platforms, analysis tools, research, and data offerings in addition to commissions — including discounts for high-volume traders — and fees. Plenty of high-quality online brokers offer access to trading platforms, tools, and research for free, so beware of brokers that nickel and dime each feature; those costs can add up quickly.”
Find what suits just you: Don’t choose a platform only because it is recommended by others. Always choose a platform based on your personal needs. Evaluate the information, talk to your broker, consider his/her experience, and pick the most suitable platform for you.
Choose user-friendly interface: Find out whether the chosen platform is comfortable enough to work with it daily. All features and functions must be easy and understandable for you. For example, look at the platform and decide whether you like it at first sight or not. If the answer is 'No', then definitely check something else. Of course, in the future, you will have to learn the details of any platform to work with it professionally. But basic buttons and options should be understandable for you immediately after opening a board. Don’t forget to check the graphics too.
Platform stability: Make sure that the platform works well and is stable and does not show frequent ‘technical glitches’ or ‘errors’ when you trade. You must be sure that a performance of a platform will be stable and smooth. This is one of the most important things in trading. As it’s told, time is money and every moment you lose could prove expensive. This can be achieved by trying it out or using a ‘demo account ‘ – a service provided by most accounts where you can learn by trading fake money.
Core functionalities/features: A platform should assist your current trading strategy. You don’t need to care about a lot of features when you are starting out. If you are going to upgrade it in the future, you will be able to do it anytime. A sophisticated platform is a good choice for those traders, who use all the features of that platform in real time. Otherwise, it will only complicate your trading experience. If you are not sure whether a chosen platform is too sophisticated or not, test how many functions you are going to use daily. The answer should be 80 per cent at least. For beginners, it is always better to start with something simpler to learn faster. Thus, you will show better progress in less time.
Equipped to help: While keeping the above points in mind, you need to also keep in mind that your broker should be equipped to work with a platform which you are going to choose. It’s not just you but also the backend team that should know the platform well.
Now you’re ready to pick a new trading platform!
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