What is an online broker?
Online brokers primarily allow private individuals to buy and sell stocks and other securities such as bonds and mutual funds. Sometimes online brokers are also called discount brokers for their cheaper prices compared to traditional brokers.
What does an online broker do?
An online broker quite simply passes your orders on to the stock market or other trading platforms. If you want to buy Apple stocks, you initiate a buy order through your online broker who passes it on to the stock market. If your order is completed, the online broker will take care of booking in the stocks into your portfolio so you legally own them. The online broker will typically take fees for this service. Today, online brokers offer many additional services such as providing loans or other types of financial services like traditional banks do.
How does an online broker work?
Online brokers are, surprise, only present online. That means you need to have access to the internet to use an online broker. Generally online brokers do not have any physical offices where you can turn to and all costumer service is provided via phone, email or other online tools. Usually, you open an account via filling in a form online, printing it and sending it to the online broker. Some online brokers send you the form via post in case you don’t have a printer available which will usually take a couple of days.
Legislation obliges all banks and thus also online brokers to uniquely identify their customers. While new methods such as video calls have emerged, the most common way to identify yourself is via the Post-ID procedure. You simply bring the application form and an ID to a German post office of your choice and they take care of the rest and send all documents free of charge to the online broker.
Within a couple of days you are ready to go and you need to transfer money to your new online broker account. This is done via a traditional bank transfer from your regular bank (get some tips what bank account to choose in Germany here).
What are the cheapest and best online brokers?
There is no definite answer to who is the best or cheapest online broker. It simply depends what you use it for. If you are reading this article, you are probably rather new to the subject and don’t even know exactly how you will invest and what kind of products you will buy. In almost all cases, online brokers are for free and it is not a bad idea to open different accounts and use the advantages of different brokers if saving fees it what matters to you. Choices are plentiful on the market and comparing prices is not all that matters. I have tested several online brokers and you can see a short introduction of three of them, Flatex, Maxblue and Degiro in this article. There you can get an idea what the cheapest and best online broker is for you.