Appetite for RISK : Do you have it in you ?. Review on Dealing With a Retail Broker

Appetite for RISK: Do you have it in you?

Can you risk your money?

Dabbling in the stock markets(of late) is not everybody's cup of tea. It really requires nerves to of steel to see your hard earned money(need not necessarily be hard earned though always . for example the money that the mutual funds collect to invest in the stock market, I guess they get it without a sweat) blow up or rather vanish before your eyes even before your could say the words abra-ka-dabra. And this leaves you wondering whatever happened and what hit you and then you make a self resolution that'Never would I venture into the big bad world of the Stock Market again'.

More so, of late after the technology meltdown, and after most of the dotcoms going bust, firstly in the developed markets and then to be followed in India, has had its toll on the financial markets the world over, India inclusive. courtesy our heavy following for trading patterns on the technology heavy NASDAQ in the U.S.

Why a retail broker?

Now one question that  comes to mind here is, So where does a broker come in into this maze of things and how does he fit into the complex trading system of the Stock Exchange, the buyer, the seller, other intermediaries? To put it in plain terms without getting in anymore financial jargon, your friendly neighborhood broker is the guy who is the interface between you as the small time investor and the Stock Exchange. To put in still simpler terms the Exchange does not know you, it only recognizes your broker and he is responsible for your trading activities on the exchange, simple is it not. His neck is under the sword for your activities and he needs to safeguard himself against any financial damage that his investors could cause to him.

What should I look for in my broker?

Now this gets interesting, as the broker has to be assured that you are not the kind of person who would indulge in malpractices while trading he needs to have a proper system in place preferably automated to prevent manual intervention in the trading. Get an answer to all of the following questions then you could decide to go ahead(or drop) with your broker for all your trading needs:

Ask these questions and see if you get a satisfactory answer:

0.(Point Zero because this is mandatory) IS HE A VALID MEMBER OF THE EXCHANGE(Ask for his SEBI registration ID . This is proof enough.)?

1. Does he have a automated system for trading(read between the lines. NO MANUAL INTERVENTION . hence no scope for price manipulation)?

   
   




2. Does he have a good risk management system to ensure that all his clients do not cross their trading limits(in effect he does not go bankrupt and hence absconding as there is no scope for payment default)?

   
   




3. Does he have a good customer support service?

   
   




4. Has he tied up with any bank(for a payment gateway interface) and depositary participant(for a demat interface)? Because you would not like to run to a bank and your DP demat account provider every time you do a trade, would you?

   
   




5. Does he provide you with a CONTRACT NOTE for every trade done within 48 hours of the trade being done through his brokerage house?

   
   




6. Does he have a good back office system to take care of all your trading needs. Like investors can be quite choosy.like I want to trade only in Equities, where as my friend might want only Option trading .others Futures only, etc. can the broker handle the variety?

   
   




7. Does he have a good research team and does he publish these reports. Are his tips and recommendations sound most of the times(Remember no one can give you 100% correct tips always)?

   
   




8. Can you place trades with him offline and after market hours?(Means place orders after the market trading hours so that they go to the exchange the first thing when the next trading session opens).

   
   




9. Has he fulfilled his Exchange obligations?

   
   




10. A bonus - If he has an online presence, then nothing like it. Something like a online trading website. In effect you experience anywhere, anytime trading. I know of quite a few online trading sites but then it would be getting into specifics and that's not the idea of this review.

    
    

Be prepared

Finally a word of caution before you enter the Stock market. Avoid my words of caution but then the risk is yours and then don't tell I didn't warn you;-).

# Never invest any money in the Stock market that you cannot do without. i.e. Do not put that money which if you loose you would be in a financial hardship. You should be able to write off the money invested in the market at least mentally.

# Never borrow(or lend to others) money to invest into the markets. Because at times the road is just one way with no scope for recovery of the money.

#Remember its very easy to enter this market but at times very difficult or even impossible to exit in time.

# Be prepared for the worst.

Remember No risk No gain. So if you have the appetite for risk then do venture out into the stock market . You can gain but only if your have done your home-work religiously and the first step is choosing the right kind of broker for your trading needs!

Happy trading friends.

Cheers,

wunderboy

P.S. - I await your comments and tried real hard to get rid of my use of slang(unlike my first review);-)