Choosing a Broker

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Choosing a Broker

Before you can trade stocks online, you have to select an online broker. Your online broker will execute your trades and store your money and stock in an account. The online trading industry has seen lots of mergers and acquisitions, but there are still many firms to choose from.

Depending on the type of investing that you plan to do, you may require to hire a broker to handle your investments for you. Brokers work for brokerage houses and have the power to purchase and sell stock on the stock market. You may wonder if you actually require a broker. The respond is yes. If you intend to purchase or sell stocks on the stock market, you must have a broker.

Stockbrokers are required to pass two different tests in order to obtain their license. These tests are very hard, and most brokers have a background in business or finance, with a Bachelors or Masters Degree.

It’s very important to understand the difference between a broker and a stock exchange analyst. An analyst literally examines the stock exchange, and predicts what it will or won’t do, or how particular stocks will perform. A stock broker is only there to follow your instructions to either purchase or sell stock… not to analyze stocks.

Brokers earn their money from commissions on sales in most cases. When you instruct your broker to purchase or sell a stock, they earn a set percentage of the transaction. Several brokers charge a flat ‘per transaction’ fee.

There are two types of brokers: Full service brokers and discount brokers. Full service brokers can normally propose several types of investments, may provide you with investment advice, and is generally paid in commissions.

Discount brokers usually don’t offer any advice and do no enquiry – they just do as you ask them to do, without all of the bells and whistles.

So, the biggest decision you must make when it come to brokers is whether you require a full service broker or a discount broker.

If you’re new to investing, you may require to go with a full service broker to ensure that you’re making wise investments. They may propose you the skill that you lack at this point. However, if you’re already knowledgeable about the stock exchange, all you actually require is a discount broker to make your trades for you.

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December 08 2008 12:05 am | Stock Market Online Trading

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