Strategies For Using Online Brokers
If you want to invest in the stock market you are forced by regulations to use a broker to place your trades
. There are basically two different types of brokers. The broker which has been around the longest is the full service broker. The other type of broker is the online/discount broker. Deciding on which broker to use will require some information and judgement.The advent of the internet has made more information available to potential investors. The emergence of the discount broker has also made it easier for people to place trades without paying the high full service brokerage fees. However, it has also made it possible for people to screw up in a larger manner. Many people think that they know enough to trade in the stock market, but then find through their errors that they perhaps do not have the knowledge needed to make worthwhile decisions.
Knowing a little bit about the stock market is like the person who was taught the rules of chess. They felt that merely knowing the rules, now made them capable of winning chess games. Imagine their surprise when they end up losing game after game. They soon learn that there are extreme subtleties to the game.
There are actually four different types of brokerage services which an investor can use. They must make the choice from these different types if they want to make stock investments.
The first one is known as the discount/online broker. This type of broker is actually nothing more than an order taker. They are more than happy to take an order for the trade which you wish to initiate. You will get nothing more from them than the ability to purchase stock for the company which you have researched.
The second type is the discount broker plus. The plus is additional assistance in the form of information. They will offer some help to you but not as much as a full service broker will offer. This type of broker is somewhat between you and the full service broker.
The full service broker will provide you with recommendations of which stocks to purchase. They will also help you to understand more of the subtleties of trading stock. They will sit down and answer any question you may have about trading stock. They make their money when you actually purchase stock through them.
The fourth type is known as a money manager. They basically take over your money and decide how it is going to be invested to meet certain criteria which you both agree on. Their commission comes as a percentage of the assets which they manage. They are expensive and unless you have a lot of money, you will probably not be using them.
If you do decide to use an online broker, you have several choices to choose from. Many of the top online brokerages have won awards for their customer service and ability to provide assistance to the common investor.
The top five brokerages are the 2009 Smart Money top broker, E*Trade. Another brokerage which you may use is the 2010 Barrons top broker, Thinkorswim. Thinkorswim was bought out by Ameritrade. Tradeking also is known for their customer service and very competitive commissions. The 2009 top broker chosen by Brand Key is Scottrade. Lastly Zecco has become known for their free stock trades and also its competitive pricing. There are of course other online brokerages which you may choose to use.
If you do decide to use an online broker, you should watch out for hidden fees. These brokerages have to make their money somewhere and they will nickle and dime you with these fees. The online broker may offer low commission fees but then turn around and bite you with fees to use their tools, retirement advice, investment forums, etc. Just be careful and ask questions of what all of the charges will be. It is kind of like buying tires. There are so many adders, you almost have to ask what the "out the door" price is going to be.
Never trust an online broker fully. Always do some of your own research and always feel comfortable with what they are telling you. After all, it is your money and not theirs. It is possible to make money in the stock market if you do the proper research.
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