How to choose a broker: what to check before you open an account
The checks that matter when you pick a broker: regulation and investor protection, how your shares are held, the real costs, taxes and what you can buy.
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A broker is the company that buys and sells shares on your behalf and holds them for you. You cannot usually buy on a stock exchange directly, so everything you invest goes through one. Choosing well is less about the app and more about safety, costs and taxes.
1. Regulation and protection
This is the first check and it is not optional.
- Authorisation. A broker must be authorised by a financial regulator. Look it up in the regulator’s public register (in Spain, the CNMV’s), not only in the broker’s own website.
- Where it is regulated. A broker authorised in another EU country can serve you, but its protection scheme and the courts for any dispute are those of that country.
- Investor compensation. In the EU, if a broker fails and client assets are missing, a compensation scheme pays up to a limit. In Spain, the Fondo de Garantía de Inversiones (FOGAIN) covers up to €100,000 per investor under Royal Decree 948/2001 (as of September 2026).
Be wary of anyone who contacts you with offers, promises returns, or is not in any official register. That is how most investment fraud starts.
2. How your shares are held
Your shares should be held in your name, or in a client account kept separate from the broker’s own money, so they are not part of its assets if it goes bust. Read the custody section of the terms: it says who holds them and where.
3. The real costs
The advertised commission is only part of it. Compare:
- Trading commission per order, often different for domestic and foreign shares.
- Custody fees: a charge for holding your shares, monthly or yearly.
- Currency conversion when you buy shares in dollars or other currencies. A small percentage on every trade adds up.
- Other fees: inactivity, withdrawals, transfers to another broker, dividend collection.
Small differences compound over decades, just like returns do.
4. Taxes and paperwork
A broker based in your country usually withholds tax on dividends and reports your gains to the tax authority, which makes your tax return simpler. A foreign one often leaves all of that to you, and in some countries holding assets abroad has its own reporting duties. Check what the broker sends you at year end.
5. What you can buy
Make sure it gives access to the markets and products you want: the exchanges you are interested in, funds or ETFs, fractional shares if you want to invest small amounts. More products is not better if you will only use a few.
A short checklist
- Authorised, and listed in the regulator’s register.
- Your assets held in your name or in a segregated account.
- Costs you understand, including currency conversion and custody.
- Clear tax documents at year end.
- Access to what you actually plan to buy.
