Why A Stock Broker?
Posted: November 11th, 2008 | Author: Mo2 | Filed under: Investing, Stocks | Tags: discount brokerage, fees, Finance, financial future, full service brokerage, Investing, online brokerage, Savings, Stock Broker, stock market |Although in terms of trading volume the stock market (all of them combined) isn’t the biggest market it is by far the most widely publicized. Just so that you know, the currency market is the most heavily traded volume-wise and hits trillions of dollars everyday. This of course to do something with the leverage that is used by some of the traders but it is also because there are huge traders (governments, financial institutions, and hedge funds) that take part in currencies. Well, that’s another topic, for now let’s talk about choosing your stockbroker.
Online? Full Service?
First you need to determine what you want from your stockbroker. Do you want him/her to tell you what to buy and when to sell it? Or do you want to do all the research on your own and buy/sell as you like? We are all different and you should go with what suits you, just remember that the more you ask for, the more you are going to have to pay for that service, having a stockbroker is no different.
Fees and Commission
Full service brokers charge more because they give you investment advice and do research. However, these brokers make money mostly on commissions; therefore, you need to wonder sometimes if they are working your best interest. By saying this, there may be times when you would have wanted to stay in a trade but because the broker wanted more commission, he persuaded you into getting out of the trade. On the contrary, the broker may give you good advice on where each industry is headed and pick out some decent stocks for you.
Online discount brokerage firms have much lower fees and commission. Because you do most of the work yourself, except for the actually purchasing of shares that are done on the trading floor, the broker doesn’t have to spend that much time attending to each customer. If you are someone that is comfortable doing your own research and has time to look over his or her portfolio, this is the way to go because you can decide when to buy/sell and choose exactly what you want in your portfolio.
Research
Depending on the brokerage firm their research facilities will be different. If you want to do all of your research on your own and plan to depend on your brokerage firm to provide you with this service, you should look into what different services are available. Nowadays, even the online discount brokerage firms provide very good research data and is often sufficient however you can find relatively decent information elsewhere.
Just be careful of where you look if you are not going to depend solely on your brokerage firm’s research service because there are a lot of scams out there. And always do your homework before your buy/sell anything. The information that brokerage firms provide may alter their commission fees and you should take note of this. If you aren’t going to be using their service why bother paying that extra service charge when you could be getting what you need for a cheaper price elsewhere.
Size of Your Account
Most brokerage firms have a minimum balance required. You can have an account with $1 but for obvious reasons you wouldn’t be able to do anything with a dollar. $5,000 seems to be the minimum at many firms and if you are under this they may charge you a fee every quarter (3 months) for having such a small account. Be sure to read the fine-print or call the firm in advance to make sure of their fees because even if they advertise “$9.99 for every trade!!” In reality, this could only be directed to larger accounts or extremely active accounts that have over 25 trades in three months.
Reliability
I’m not saying that the brokerage firm will go under the minute you open you account. Although anything is possible, you need to see if the firm is reliable enough to take care of you once you are a customer. How and when can you contact them? Look on some online forums to see what other people are saying about the firm. When something goes wrong how do they handle things?
Mo2 Thinks
First things first, you should decide what you want your broker to do. If you want him/her doing everything go for a full-service broker. I like to do all of my own research and keep commission costs at a minimum; therefore, I’m an online discount broker type person. We’re all different so you just need to decide if you’re really willing to look at fundamentals of a company or a stock charts to determine the future price of a company.
Nothing is easy and it comes at a cost. Learning to invest is an investment itself of time and money. You need to spend a significant amount of time figuring out which stock to buy. You also have to have good reasons for buying a stock.
“The guy on the business channel said it’s a good buy,” is not a good reason. I don’t care if 15 of 16 analysts are saying it’s a good stock. You need to formulate your own opinion and see why it is a good buy. Does the company have a good chance of increased earnings? Is the industry really strong right now? Is it a takeover prospect? There are many reasons, and having just one reason may not be enough. The discovery of an underwater kingdom with people living off of water bubbles might change the face of the stock market tomorrow, who knows?
Ok, now I sound like a madman. Anyhow you kind of get what I’m talking about (I hope). As I always say, do your homework and you will be more comfortable with your investments. Even with a full-service broker you should at least look in to the stocks that they recommend.
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