Module 1 · Lesson 9 of 9 · Foundations · About 5 minutes
Choosing a Broker: Questions to Ask, Not Answers to Copy
On this page
Before you read: Exchanges, Brokers and Clearing: Who Does What in a Trade
What you will learn
- Which questions help compare brokers without relying on advertising.
- Where to check registration and disciplinary history for free.
- What account protection schemes, such as SIPC, cover and do not cover.
What should a comparison cover?
Beyond the advertised commission, what costs and limits matter?
Useful questions include: Which products and markets are offered? What are all the fees: commissions, exchange and regulatory fees, data fees, margin interest, inactivity and transfer fees? How are stock orders routed, and does the broker receive payment for order flow? What are margin rules and how are liquidations handled? Are quotes real-time? What support and outage history exist? The answers are in the broker’s fee schedule, disclosures and customer agreement.
Comparison checklist diagram
Illustrative diagram constructed for teaching. Not real market data.
The diagram groups the questions above into five boxes: products, costs, order handling, protection and support, with a note to check answers in the broker’s own documents and on regulator lookups.
How can registration be checked?
How do you confirm a firm is what it says?
In the United States, FINRA BrokerCheck lists registered broker-dealers and their disciplinary records. For futures, NFA BASIC lists registered firms and actions. The SEC’s investment adviser search covers advisers. Other countries run their own registers. These lookups are free.
What does account protection cover?
If a broker fails, what happens to customer assets?
SIPC protects customers of member broker-dealers up to set limits when a firm fails and customer assets are missing. It does not protect against market losses. Futures accounts are generally not covered by SIPC; SIPC notes a narrow exception for futures held in a special portfolio margining account. Instead, futures firms must keep customer funds segregated from their own money. Segregation is not insurance, and neither SIPC nor segregation protects against market losses. Cash held through sweep programs may have bank deposit insurance, depending on the program.
What this does not tell you about brokers
- Which broker suits anyone. No broker is named or ranked here.
- Current fees or protection limits. Check the firm and SIPC.
- How any firm will perform in the future.
- Nothing here is a recommendation.
Watch the lesson explained
Check yourself
- Name three costs beyond commissions. Hint: data, interest, fees.
- Where can a US broker’s disciplinary history be checked for free? Hint: FINRA.
- Does SIPC cover losses from falling prices? Hint: what does it protect against?
Reflect on your own process
- Which registration lookups does your checklist require before you open an account, and where do you save the results?
- Have you written down where your cash is held and what protection applies, with the document you got it from?
- Which questions from this lesson would you add to your own broker-review notes, and how often would you revisit them?
Sources
- What SIPC Protects
- 17 CFR 1.20 Futures customer funds to be segregated and separately accounted for
- Pass-through Deposit Insurance Coverage
- BrokerCheck
- BASIC (Background Affiliation Status Information Center)
- Investment Adviser Public Disclosure
- Staff Report on Equity and Options Market Structure Conditions in Early 2021