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The Best Brokers: What They Do and Why You Need Them

brokers investment trade Oct 30, 2019

The internet has made life much easier for everyone.

People can pay their bills online, secure transactions, open up a bank account, buy groceries, shop for clothes or shoes, book appointments, consult a doctor, get a degree or order food.

In the same way, people can now invest in stocks, bonds, and funds.

The cost is low and it keeps on falling.

So, while everything is available at the click of the mouse, why should investment and brokerage services be any different?

  • In fact, brokerage services and stock traders that may have cost you hundreds of dollars about three decades ago can now be done from the comfort of your home while costing you less than $10!

To make things easier, this article will help you pick the best brokerage firm for yourself and explain the process of choosing.

 

What is a Stock Broker?

To explain simply, a broker is a middleman or an agent who facilitates a trade.

When it comes to stock trading, a stock trader can be divided into two types, both providing different kinds of services at different prices:

Full-service Brokerages

This refers to the traditional type of brokerage firms, those who operate in a conventional way - through brick and mortar offices.

  • Their main selling point is their services, which means they generally offer more than merely a chance to place a trade.

They may provide different services such as tax tips, retirement planning help and advice, and guidance on which investments to go for and which ones should be avoided.

Full-service brokers are the typical and conventional stockbrokers who will mail you a happy holiday card but this service, of course, comes at a high price tag.

Online Discount Brokers

As the name suggests, these are the brokers you find online.

  • They are usually offering some extra stuff, such as research on stocks and funds.
  • Their main job is to help investors place orders and buy stocks at a low price.

Many investors do not want to use full-service brokers and may prefer to use the less expensive ones by paying less commission on each trade so that they can end up saving money rather than wasting their money on unnecessary frills.

One type of stockbroker is not necessarily right for everyone since every investor has their own preferences.

  • In fact, people often use two kinds of brokers.

While a full-service broker may cost $500 as their commission for a $10,000 investment, a discount broker may charge only $5. This difference alone is enough for many people to opt for a discount brokerage firm.

As you near retirement, you may want to opt for a full-service brokerage firm that can handle all of your financial complexities for you.

  • This includes managing your wealth in a tax-efficient manner, or setting up a trust to pass on your wealth to the next generation and so on.

Therefore, for many people, at this stage of their life, they may think it’s alright to pay a hefty commission each year for advice and access to a professional who can help them with their financials as they start to make withdrawals instead of contributions to their retirement accounts.

However, things have changed, and nowadays, even the discount brokers are getting involved in advisory services, so they shouldn’t be ruled out completely.

 

 

How to Buy Stocks Online

The presence of online brokers makes life easier and much more straightforward by placing trade online and buying stocks. 

Once you have a brokerage account, all you require is the stock ticker's symbol and you can place a trade.

  • A ticker symbol is five letters in length and specifies which stock you want to trade.
  • For example, the ticker for Nike is NKE, for Amazon, its AMZN, for Ford, it is F.
  • Moreover, the brokers allow investors to place the following two kinds of orders when they buy stock.
Market Order

This is the order that is placed at the prevailing market price immediately.

This means, if you decide to place an order for 10 shares of Amazon, the trade will be filled by another person who is selling 10 shares of Amazon but not at a known price.

This is filled quickly and you can end up paying a little premium for each share bought.

Limit Order

This is different from the market order in that the trade takes place at a particular price.

For example, if you decide to buy 10 shares of Amazon at $70 each, the order will only be completed if there is anyone selling the shares for $70 per share.

  • This is a good way of buying and selling the stocks that do not often trade as there may not be many willing sellers who want to complete a market order at a reasonable price.
  • These orders are useful in a way that you can place the limit order and forget about it, as it can remain in effect till you find the price you are willing to buy at.

Limit orders are usually suitable for new investors or beginners as it allows them to pick a specific price at which their order is to be filled.

When it comes to a market order, it is more important that your order gets filled in, rather than at what price it gets filled in.

 

The Best Electronic Brokers

The most reputed and well trusted online brokers, reviewed for their services, reliability, fee structures, and others, are listed below:

Fidelity Investments

Interactive Brokers

Charles Schwab

TradeStation

TD Ameritrade

 

Choosing the best online stock broker is not an easy task, especially when there are so many options.

It is important that you should consider a few factors that include commission, fees, analysis tools, the minimum amount required to open an account and the like.

You should not go for an online broker simply because they are cheap or affordable, but they should be reliable as well, depending on their reviews and reputation.

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