XTB
Stock broker- Stock fee
- 0%
- Minimum deposit
- Fără minim
- Regulated by
- KNFASFFCA
Lesson 1.5 · 5 of 5 · First steps
How to choose a stock broker: licence, protection and costs
To choose a broker, first check that it is authorised by the financial regulator. Then look at how your money is protected if the firm fails, at the costs, and at what you are really buying: the share itself or a CFD, a contract that only tracks its price.
Terms in this lesson
- Broker
- The firm through which you buy and sell stocks, ETFs and other investments.
- Investor compensation scheme
- The protection that returns your cash and shares, up to a limit, if your broker goes bankrupt.
- CFD
- A contract with your broker that pays or charges you the price move, without owning the asset.
- Trading commission
- What it costs you to buy, sell and hold shares at a broker.
Opening question
You want to open your first account with a broker. What do you check first?
Authorisation comes before everything else. An authorised firm is supervised, must keep client money separate and belongs to a compensation scheme. Star ratings and bonuses tell you nothing about the safety of your money.
It does not matter if you get it wrong: trying first helps you remember.
What does a broker do?
Definition
What does a broker do?
It takes your orders to the stock exchange and holds your shares.
Stock exchanges do not deal directly with the public. A broker is the go-between: it receives your order, carries it out on the exchange and holds the shares in your account. Client money and shares must be kept separate from the firm’s own money.
ExecutesYour orders
It buys and sells for you, at the market price or at a price you choose.
HoldsYour shares
It keeps them in an account in your name, separate from the firm’s money.
ReportsWhat you own and earn
It sends you statements and, at the end of the year, the documents you need for tax.
Check yourself
The authorised broker you use goes bust. What normally happens to your shares?
How sure are you?
Client shares are held separately and do not form part of the broker’s assets. If money or shares are still missing, for example because of fraud, the investor compensation scheme steps in, up to a limit.
Checking a broker’s licence, protection and costs
| Where you live | Who supervises brokers | Protection if money or shares go missing |
|---|---|---|
| UK | FCA (Financial Conduct Authority) | up to £85,000 per person, per firm, through the FSCS |
| Ireland and the EU | the national regulator, such as the Central Bank of Ireland | usually up to €20,000 per investor, the EU minimum |
| US | SEC and FINRA | up to $500,000, including $250,000 in cash, through SIPC |
You can check a firm on the FCA register, the register of your EU regulator or FINRA BrokerCheck. The limits shown are those currently in force.
Myth or fact?
“The compensation scheme will pay me back if my shares fall in value.”
Myth. The scheme only pays out if the broker fails and your money or shares are missing. No one compensates you for falling prices: that is the risk of investing.
Once the licence checks out, compare the costs. These are the ones that matter most often:
- Commission per trade: zero at some brokers, a fixed fee or a percentage at others.
- Currency conversion: on shares priced in dollars, some brokers add a charge every time they convert your pounds or euros.
- Platform or inactivity fees: some charge a monthly or yearly fee, or a fee if you do not trade.
- Withdrawals: check that taking your money out is free. The details are in the guide to costs.
A share broker or a CFD broker?
You buy the shareshare broker
- The share is yours: you receive dividends and can vote
- You can lose at most what you invested
- Suits long-term investing
- You need the full amount for the position
You buy a CFDcontract for difference
- You can also profit from a falling price
- You do not own the share: you hold a contract with the broker
- It uses leverage: gains and losses are multiplied
- You pay a fee for every night you hold the position
74-89%of retail CFD accounts lose money, according to the EU regulator ESMA
5:1maximum leverage in the EU on CFDs on individual shares
30:1maximum leverage in the EU on major currency pairs
Check yourself
In an app you see a “Buy” button next to Apple, but the corner says “CFD, leverage 5:1”. What do you buy if you tap it?
This exercise is in the free account, where we also save your progress.
Create a free accountHow to open a broker account, step by step
Put in order
Put the steps in order, from first to last.
This exercise is in the free account, where we also save your progress.
Create a free accountWhat would you do?
You have found two authorised brokers. The first charges no commission, but its currency conversion is more expensive and its app is hard to follow. The second charges a fixed fee per trade, has a clear app and phone support. What do you choose?
This exercise is in the free account, where we also save your progress.
Create a free accountReady to start?
Where you can open an account
Regulated brokers available where you live.
Check every broker on the regulator’s register before depositing money. The full list of checks is in the guide to choosing a broker.
4.8
eToro
Stock broker- Stock fee
- 1 USD sau 2 USD
- Minimum deposit
- 50 USD
- Regulated by
- CySECASFFCA
Trading212
Stock brokerCommission-free stock and ETF investing with a simple multi-currency account.
- Stock fee
- £0/€0/$0 per trade0.15% FX fee applies when converting between currencies
- Minimum deposit
- £1/€1/$1
- Regulated by
- FCACySECBaFin
77% of retail CFD accounts lose money.
Some links are affiliate links: if you open an account, we may earn a commission at no cost to you. Investing involves the risk of losing money. Compare all brokers
What you learned
- The first thing to check about a broker is its authorisation on the regulator’s register.
- A compensation scheme protects you if the broker fails, not if prices fall.
- A CFD is not a share: it is a leveraged contract on which most retail clients lose money.
One more time
The questions you got wrong, asked a different way.
Check yourself
Why must an authorised broker keep client money separate from its own?
Keeping it separate protects clients: if the firm runs up debts or fails, their money and shares do not belong to it.
You reached the end
Keep what you learned
With a free account we remember your lessons, bring back the questions you got wrong exactly when you need them and keep your streak.
Save your progress with a free accountNext lesson · 5 minEmergency fund
Lessons are educational. They are not a recommendation to buy or sell. Investing involves risk and you can lose money. Sources: FSCS investment protection limit (£85,000); SIPC protection limits ($500,000, including $250,000 cash); EU Investor Compensation Schemes Directive 97/9/EC (€20,000 minimum); ESMA product intervention measures on CFDs of 27 March 2018 (74-89% of retail accounts lose money; leverage limits); MiFID II rules on safeguarding client assets and appropriateness.