Candlestick Trading Blog
December 7, 2007
Online Discount Brokers
Diving Deeper into Online Discount Brokers When looking to begin investing in the stock market, it is important to understand the different types of stock brokers available for you to work with. There is the full-service broker, the online discount broker, and the deep-discount broker. Below is an explanation of the three types of brokers in which we will focus mainly on the online discount broker. Full-Service Broker: These brokers offer a variety of financial products, as well as investing advice, investment strategies, and research. They charge higher fees than online discount brokers, and they may offer stocks and bonds, annuities, derivatives, and insurance. A full-service stock broker is compensated by how often you trade, and not according to how well your stock portfolio performs. Online Discount Broker: These brokers offer lower commission rates which are primarily achieved through the automation of trading and investing and customer service. They can often charge lower fees for the investor they are servicing in a couple of ways. Online discount brokers often specialize in high volume stock trading which reduces rates by offering ECN rebates to traders providing liquidity. They also will often have access to alternate quotation services, allowing trades to execute without incurring exchange fees. Rather than make money on commission, the online discount broker makes money by widening the spread, or by selling the right to execute the order to a market maker who can widen the spread. Deep Discount Broker: If price is your primary concern, then you will want to trade stock using a deep discount broker. Online discount brokers of this nature offer a one-way trade for a set price per trade and most of them have an 800 number that functions as an automated trading service. This allows you to place your orders over the phone without actually having to talk to a real person when you are buying stock, or selling stock. Mostly all of these types of brokerage firms offer an online stock trading program where you can buy stock and sell stock right on your computer. Online discount brokers (deep discount brokers) also provide easy access to your stock portfolio. Tips for Choosing and Online Discount Broker: Tip #1: Be sure to check out the websites to ensure that each site’s interface is easy for you to follow. It should be instinctual and intuitive (in comparison to other sites) and should be a site that you can see yourself working with every day when you are trading stock online. Tip #2: Customer service is the key to choosing an online discount broker. You can test this by requesting information or materials online from the brokerage firm to see how fast they reply and to see how relevant and helpful the material is in relation to online stock market trading. Tip #3: Check out the fees. Many of the fees associated with picking an online discount broker focus on the price per trade. You have to determine if you want the cheapest price per trade, a middle of the road fee, or the highest fee. There is no right or wrong answer, but you must differentiate between what is associated with the costs and the level of service in order to determine your needs for successful trading through an online discount broker. Tip #4: Take a peek at any perks and freebies. Sometimes online discount brokers can give you stock market advice books, internet access, money, or frequent flier miles through their firms as an added bonus. This shouldn’t determine your answer, but may sway you in one direction if you need a tie-breaker. When deciding which online discount broker you will use, please note that it is a highly competitive business due to the great number of online discount brokers available. For those of you who don’t want to invest a lot of money, and wish to do your own research in the stock market, an online discount broker is the way to go. Online Stock Market Reviews presented live via the internet by Stephen Bigalow |
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