You need to find a stockbroker or switch brokers, but how do you know if you're getting a good deal?
Sure, the salesman said it was a great deal and you'd get 10 free trades, but what's the catch?
What's that? The salesman gets paid to sign up new accounts, not to help you. I can tell you from experience that they "bend the truth" just as much as a used car salesman, but for a lot more money!
It is important to know what you are getting into.
You can avoid a scary show in the future.
There is no such thing as a free lunch, so they have to find another way to make up the money they lose on 7$ trades.
Many rules hidden in the fine print are as confusing and sneaky as the worst cell phone plan...and can cost you just as much!
But why would switching stock brokers be bad for your finances?
Find out what can go wrong; do you know what to look for?
Switching stock brokers can be bad for your finances!!
Let's start with the fact that changing brokers isn't very fun or easy, unless you only have mutual funds or "buy and hold" positions.
If you trade or have option positions, make sure you know all the terms of your new account before you move.
Even though it may seem like you can switch brokers with the click of a mouse if you have a bad deal with one, there is more to it than that.
"ACAT" is the name of the system that lets you move open stock or option positions. Salespeople sometimes say that this will take "a few days."
This seems to be like a garage telling you that your car will be ready by noon, but it won't be until 6:30 or maybe the next day.
In my experience, 10 days is the quickest time to finish.
But this depends on the number of positions in the account and the broker's back office or "clearing broker" (some brokers subcontract this work out, while others have their own). The positions come into the new broker in bits and pieces over the time period, and the new broker must reconcile the balances and positions with the new broker.
You won't be able to buy or sell any open positions during this time.
They are in a sort of no-land man's where you can't trade them at either firm.
Is this a lot of trouble?
you bet your life...what if the market drops 100 points?
have you ever heard of Murphy's law?
What if a stock goes up 10 points but you can't sell it, then goes back down the day before your position is transferred to a new broker?
Well, you had time to get used to kicking yourself!!
Here's one more thing that could go wrong in this situation.
What if the positions come from the old broker, and when the margin department at the new broker figures out how much money you have in your account, they send you a margin call because their margin policy is different?
Oh, someone told you that all brokers have the same rules?
(More on that in a bit).
You would have to do forced liquidations as your first trade, which would further delay your access to your account.
"Welcome to the &$# trade!!"
I know this because.
You guessed it, it happened to me, and in those 12 days, I lost $100,000.
You can sue, but my advice is to pay the commissions, no matter how much you hate it, or face the tax consequences.
You should close out all open positions with the broker you are leaving and either wire the cash or send the check to the new broker as quickly as possible. By leaving with cash, you also avoid the service fees that many brokers charge for acat transfers. and beginning with money. If you have extra money in the bank and are worried about a position in the old account going for or against you, you could open an offsetting position by setting up the new account before you move and opening the offsetting position BEFORE you close the old account. If you pay cash, you won't have to worry about it.
"A man has to know what he can and can't do."
Fans of movies from the 1970s will recognise that line!
How does that relate to stockbrokers?
The first step in choosing a broker you'll be happy with is to be honest with yourself about what you want to do with your account.
This is because brokers charge different fees, commissions, and margin policies.
If you think carefully and realistically about what will happen in the account, you can find a broker who is right for your investments.
If you just want to buy and hold, don't use a broker with minimum activity levels because the fees will add up.
If you tend to keep a balance on your margin account, look around for the lowest margin loan rate. They vary a lot.
If you trade options, be very careful when comparing commissions to look at the fine print (more on this later)
Know what the broker can and can't do.
This is the hardest part, and I hope that this website will shed some light on it.
Most brokers would rather you didn't know this, and they have a big reason to keep it a secret.
There's a lot of competition in the brokerage business because there are so many of them.
I saw that Bank of America lets people trade for free.
Humanists? You know there's a catch, right?
It seems that in order to stay in business, brokers have to come up with hidden fees that (hopefully) no one will notice.
I think there are two main reasons why they are often not seen.
One, people are scared of or bored with financial jargon.
Two, brokers have every reason to...just let's say emphasise the good things and leave out the bad things.
Don't worry, the detective is here to show you where the problems are!!
Please stay and look at page two to find out where some of the bones are buried.
I'll tell you what to look for.
