There are many different kinds of brokerage services. When you add up all the fees and commissions, there are big price differences. Estimate how many trades you will make and what other services you will use in a year. Then you'll be ready to make a decision based on good information.
Stock brokers do most of the buying and selling on the stock market for their clients, who are the investors. There are a lot of different kinds of brokerage services.
Brokers who do it all
"Full-service brokers" help their clients reach their investment goals in a number of ways. These brokers can tell their clients what stocks to buy and sell, and they usually have large research departments that look at market trends and predict how stocks will move.
These services are not, of course, free. The highest commission rates in the business are charged by full-service brokers. Whether or not you should use a full-service broker will depend on how confident you are, how much you know about the stock market, and how often you trade.
Discount Brokers
Discount brokers are often used by investors who want to save money on commission fees. The commissions for these brokers are much lower, but they don't offer advice or analysis. Discount brokers are often used by investors who like to make their own trading decisions and by people who trade.
Online Brokers
Taking the idea of a discount one step further, trading stocks through online brokers is the least expensive way to do so. Most of the time, both full-service and discount brokers offer discounts for online orders. Some brokers only work online, and the rates they offer are the best of all.
Account Requirements
No matter what kind of broker you choose, the first thing you'll need to do is open an account. Brokers have different minimum balance requirements, but they are usually between $500 and $1000. When looking for a broker, read the fine print to find out about all the fees. Some brokers will charge you a maintenance fee once a year, while others will charge you if your account balance falls below a certain level.
Cash or Interest?
There are two main kinds of brokerage accounts. The "cash account" doesn't let you borrow money, so when you buy stock, you have to pay the full price. With a "margin account," on the other hand, you can buy stocks on margin, which means that the brokerage will pay for some of the cost. The amount of margin varies from broker to broker, but the client's portfolio must be worth at least as much as the margin.
When an investor's portfolio falls below a certain value, he or she must add more money or sell some stocks. With margin accounts, investors can buy more stock with less cash, so they have a greater chance of making money (or losing money). Since margin accounts have more risk than cash accounts, they are not good for traders who are just starting out.
How to Choose the Best Broker for You
Before you choose a broker, you should give careful thought to what you need as an investor. Do you want help deciding what stocks to buy? Do you feel uneasy about trading on the Internet? If so, a full-service broker will help you the most. You will be better off with an online discount broker if you are comfortable buying things on the Internet and have the knowledge and confidence to make your own trading decisions.
After you decide what kind of broker you want, compare what the other brokers offer. When you add up all the annual fees and brokerage rates, there can be big differences in the costs. Estimate how many trades you want to make in a year, how much cash you can put into your account, if you want to use margin accounts, and what services you need. With this knowledge, you'll be able to compare the real costs of different brokers and make an informed decision.
