'The stockbroker should have a good balance sheet to support its scale of operations.'
'It should also have proper risk management in terms of margins so that it doesn't go bankrupt during extreme market movements.'
'The broker must have a track record of navigating several market cycles in an ethical and transparent manner.'
The stock market has been witnessing a massive influx of new investors in recent months with more than three million demat accounts being opened in both August and September.
How should these new investors select a stockbroker at a time when the broking landscape is witnessing a churn, with Groww displacing Zerodha as the country's largest stockbroker?
Experts say that while selecting a broker whose size is below a threshold level could be counter-productive, size alone should not govern a customer's choice.
Says Vikas Singhania, CEO, Trade Smart Online: "In the case of some brokers, the quality of their customer support has been known to dip as they became bigger."
Essential filters for optimal choice
Financial stability: Examine the broker's financials.
Says Mohit Mehra, vice president, primary markets & payments, Zerodha: "Your stockbroker must have an adequate net worth. Regulators and exchanges do stipulate a minimum net worth requirement.
"However, a larger net worth can indicate a more financially stable entity."
Jatin Khemani, managing partner and chief investment officer, Stalwart Investment Advisors LLP, a New Delhi-based Sebi (Securities and Exchange Board of India)-registered Portfolio Management Services firm, too, underlines the importance of financials.
"The stockbroker should have a good balance sheet to support its scale of operations. It should also have proper risk management in terms of margins so that it doesn't go bankrupt during extreme market movements."
Clean track record: Go with a broker that complies with regulations.
Says Tejas Khoday, co-founder and CEO, FYERS: "The broker must have a track record of navigating several market cycles in an ethical and transparent manner."
High-quality customer support: Unlike positional traders, who may not mind if the broker's customer support team responds in a few hours, professional traders need immediate help.
Says Shrey Jain, founder and CEO, SAS Online: "If they face issues like order rejection, they need immediate attention."
Khoday emphasises that the personnel manning customer support must be knowledgeable.
Quality of platform: The platform should be easy to navigate and must have a track record for robustness.
Says Khoday: "It should have served enough customers so that one can be sure it is stable and scalable. A trader could lose his entire capital in a day if the platform is not reliable," he says.
Traders prioritise reliability
Professional traders place a large number of trades every day.
"Positional traders, who place up to 10 to 20 orders per day, may be comfortable trading via an app or a web platform. But professional traders need downloadable software, which tends to be more stable," says Jain.
Traders also have specific requirements for managing risks.
Says Jain: "The broker must offer scrips, such as out-of-the-money options, which traders use to hedge their positions."
Singhania adds that traders who rely on technical analysis would prefer a platform that offers related tools.
An algo trader would want a broker that provides an application programming interface (API) into which they can easily plug in their algorithms.
Says Rajesh Ganesh, founder and CEO, Tripleint.com: "The API should be usable with multiple programming languages.
"The speed at which requests are executed is another key consideration. And the API must be operational throughout market hours."
Investors: Safety is the key
Younger investors prefer to do their own investment research.
"They prefer brokers that offer sufficient data to help them in this task," says Khoday.
The safety of holdings is another key consideration for investors.
Says Khemani: "One sensible shortcut for them is to stick to brokers backed by large private-sector banks.
"They do charge a higher brokerage. But since long-term investors engage in fairly limited churning, paying a few basis points extra in brokerage doesn't matter if it ensures the safety of holdings."
He warns against giving power of attorney (PoA) to a smaller broker and suggests authorising each debit by the broker directly via NSDL (OTP-based).
Balance price with features
Pricing is a less important criterion in broker selection today.
Says Khoday: "It has standardised today at Rs 20 per order."
Both per-order pricing and monthly, subscription-based plans exist (the latter allow unlimited trading).
Singhania says traders need to be especially cautious about pricing since they often trade on thin margins.
Jain adds that they should go for unlimited plans because of their high trading volumes.
Watch out for these red flags
Be wary of brokers who promote unsuitable investments.
Says Mehra: "If a broker recommends penny stocks, or option buying to a novice investor, those are red flags."
Some brokers generate a lot of alerts or send numerous stock ideas in an attempt to push customers to trade more.
Says Jain: "Be mindful of such attempts."
Steer clear of brokers who have a track record of engaging in aggressive, dodgy business practices, or who are looking to circumvent Sebi regulations.
Before finalising a broker, check ap reviews and posts on social media.
Says Jain: "Nowadays, one can learn about most issues pertaining to a broker--instability of the trading software, platform downtime, delayed payouts (an indication the broker may be facing financial difficulty)-- by going through reviews."
Singhania urges customers to look up the number of complaints on NSE's website against brokers they are considering.
Finally, Khoday suggests that each trader should have at least two accounts so that if one is down, they can hedge their positions with the other.
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Feature Presentation: Ashish Narsale/Rediff.com