Over the past two decades, the world has changed a lot, and there is no better place to see this than in the world of stock trading and investing.
In the past, most investors used a traditional stockbroker at a brokerage firm to choose their stocks. Stock certificates on paper would be given to the stock buyer as part of the deal. There were also very few types of investments available to the "average investor."
Today, the same "average investor" can trade single stocks, currencies, commodities, and indexes all with the click of a mouse and without leaving home.
But because there are so many options, it can be hard to figure out which stockbroker is best for you. This guide will explain the different kinds of stockbroker services and help you decide which one is best for you.
Here are just a few of the many things you should think about when choosing your stockbroker:
- Do you feel comfortable making trades online with just one click, or do you prefer to talk to a real person on the phone or in person? Firms can now process large numbers of trades cheaply because of technology. If you don't need to talk to a person to make trades, there are a lot of "no frills" online brokerage services that will let you do business for a few dollars per trade.
- The number of transactions you do will have a big impact on which brokerage service is best for you. Some companies offer price breaks for people who trade a lot. If you trade every day, you can find a service that fits your needs much better than if you only trade once in a while.
- Do you want a simple "execution only" service, or do you want help with your trades? Obviously, a service that only does the job will cost less.
What kinds of stockbroker services are out there?
The public has access to three main types of stock-broking services:
- Advisory Service: The Financial Services Authority must register and approve any company that gives advice to the public as part of an advisory stock-broking service (FSA). The FSA is a government agency set up to make sure that financial companies follow the many rules that make sure the financial world is fair and free of fraud.
When a company offers an advisory service, it needs to make sure that any employees who give financial advice are qualified to do so. On the FSA website (http://www.fsa.gov.org), you can find a list of companies that have been approved by the FSA.
Most stockbrokers will, of course, charge a fee for their advice. Most of the time, the stockbroker will talk with you about your investment goals and objectives and then suggest a range of investments that they think would work best for you. You can, of course, take them up on their offers or turn them down. Most advisory services are done in person, either at the broker's office, at your home, or over the phone.
- Discretionary Service: With this service, you give the stock-brokering company a certain amount of money and they invest it for you. It's very different from an advisory service because the stockbroker doesn't have to tell the investor about every trade they make on their behalf. The stockbroker has a lot of "discretion" over how to invest the clients' money.
Execution Only: As the name suggests, this type of trade only tells the broker to buy or sell a specific investment. The broker doesn't have any say in the trade (even if they thought the stock was going to drop by 90 percent tomorrow they are not obliged to say anything). This is the kind of service that has recently become available to a large number of people through online brokerage houses. Most trades cost about $10 each.
You will spend a lot of time and money with your broker, so it's important to take the time to find the right one.
