10 Things to Check Before Opening a Trading Account

Knowing how to choose a broker protects you from two problems at once: paying more than you need to for years, and handing money to a firm that is not what it claims to be. PrymoInvest is not a broker and does not rank or recommend any. Instead, here are the ten checks we would make ourselves, in the order that saves the most time.

How to choose a broker: start with your own plan

Write down how you plan to invest. Someone buying a fund once a month in a tax-free account needs a very different broker from someone trading overseas shares weekly. Note the markets you want, the products (shares, ETFs, funds, bonds), the account type, how often you will trade and roughly how much you will hold. Every cost below only makes sense against that picture.

Checks 1 to 3: is the firm real and properly protected?

1. Find it on the regulator's register. Look up the firm on your national regulator's website, such as the Financial Conduct Authority in the UK or FINRA's BrokerCheck in the US, typing the regulator's address yourself rather than following a link. Confirm the registered name, number, address and permitted activities. Scammers create "clone firms" that copy a real firm's name and number but use different contact details, so check that the website and phone number match those on the register.
2. Identify the legal entity you would sign with. Many broker groups run several companies in different countries. The brand you see advertised may put you with an offshore entity with weaker rules. A sign of this is leverage far above local limits, such as offers well beyond 30:1 on currency pairs to UK or EU retail clients. The client agreement names the entity; read that page.
3. Understand how your assets are held. Regulated brokers normally hold client shares in nominee accounts and client money in segregated bank accounts, separate from the firm's own funds. Find out which compensation scheme applies if the firm fails and a shortfall appears, such as the Financial Services Compensation Scheme in the UK or the Securities Investor Protection Corporation in the US, and what its limits and exclusions are.

Checks 4 to 6: what will it really cost?

4. Dealing charges and spreads. Some brokers charge a commission per trade, some a percentage, some advertise "zero commission" and earn from the spread or from how orders are routed. Compare the total for a trade of your usual size in the markets you use.
5. Currency conversion. Buying overseas shares means converting currency, and the fee is often a percentage added to the exchange rate rather than a line on the statement. It can easily outweigh the dealing charge.
6. Account, platform and inactivity fees. Look for yearly or monthly account fees, percentage-based custody charges, fees for holding funds, charges for paper statements and fees for accounts left unused. Remember that any fund you buy also has its own ongoing charge, collected inside the fund.

Checks 7 and 8: does it fit the way you invest?

7. Accounts and products. Check that the broker offers the tax-advantaged accounts available to you, such as a stocks and shares ISA in the UK, and the specific markets and funds you want. Fractional shares, regular investment plans and automatic dividend reinvestment can matter a great deal to long-term investors with modest monthly amounts.
8. Dividends and withholding tax. For overseas shares, ask how dividends are paid, whether they are converted automatically and at what rate, and how foreign withholding tax is handled. Non-US investors in US shares usually need to complete a W-8BEN form so that a reduced treaty rate can apply where one exists.

Checks 9 and 10: service, security and the way out

9. Security and service. Two-factor authentication should be standard. Check the support channels, their hours, and the formal complaints procedure, including whether you can escalate unresolved complaints to an independent body such as the Financial Ombudsman Service in the UK.
10. Leaving. Find out what it costs to close the account or transfer your holdings to another broker, and whether transfers can be made "in specie", moving the investments themselves rather than selling them first. A firm that is easy to join but expensive to leave has told you something.

Read the key documents

A broker's website is marketing; its documents are the contract. Before opening an account, skim at least these:

• Client agreement or terms of business: names the legal entity, sets out how your assets are held and lists the fees the firm can charge.
• Costs and charges disclosure: regulated firms in the UK and EU must show expected costs in money and percentage terms before you invest.
• Key information documents: for funds and some other products, a short standard document covering objectives, risks and costs.
• Order execution policy: explains where your orders are sent and how the firm aims to get a good price.
• Complaints procedure: tells you how to complain and where to escalate.

If a firm cannot or will not provide these, that alone is a reason to look elsewhere.

A worked example of hidden cost

These figures are illustrative. Two brokers both charge the same small dealing fee on US shares, but Broker A adds 0.5% to currency conversions and Broker B adds 1.5%. An investor converts £10,000 into dollars to buy a US fund.

• Broker A: £10,000 × 0.5% = £50 on the way in.
• Broker B: £10,000 × 1.5% = £150 on the way in.

The same fee applies again when selling and converting back, and on every dividend converted along the way. Over years of regular investing, the gap can easily exceed every dealing fee paid. Our guide to trading fees goes through each cost in detail.

Test before you commit

Before moving a large sum, open the account with a small amount and use it for a few weeks. Place a small order and check that the price, charges and contract note match what the documents said. Send support a simple question and note how quickly and clearly it is answered. Make a small withdrawal back to your bank and time how long it takes. A firm that performs well on these ordinary tasks is more likely to behave well when something goes wrong; one that stumbles has shown you its weaknesses cheaply.

When you invest small amounts

For someone investing a modest sum each month, the balance between charges shifts. A flat yearly account fee that is trivial on a large portfolio can be a large percentage of a small one, while a percentage-based fee that looks expensive on a large portfolio may cost little. Regular investment plans with reduced dealing charges, automatic dividend reinvestment and fractional shares matter more than advanced tools. Re-run the comparison as your portfolio grows, since the cheapest firm for £2,000 may not be the cheapest for £200,000.

Warning signs that end the search

• The firm contacted you first, by phone, message or social media, or through someone you met online.
• It is not on the regulator's register, or the contact details differ from those on it.
• It promises returns, guarantees profits or offers a bonus for depositing.
• It asks you to pay by crypto, gift card or transfer to a personal account.
• Withdrawals come with new fees or taxes you must pay first.

Any one of these is enough to walk away. Our guide on spotting scams explains how each works.

Sources

• UK Financial Conduct Authority, Financial Services Register and guidance on clone firms
• FINRA BrokerCheck
• Financial Services Compensation Scheme (UK), investment protection
• Securities Investor Protection Corporation (US)
• US Internal Revenue Service, Form W-8BEN