What Stock Brokers
Do
 Stock Brokers handle most of the
buying and selling on the stock market, and the average investor will
use a brokerage service to handle his trades. There is a broad range of
brokerage services available. There are brokers who offer many services
for aiding their clients meet their investment goals. These
'full-service brokers' can give advice about which stocks to buy and
sell and often have full research facilities for analyzing market trends
and predicting movements.
These perks are not free – full service stock brokers charge the
highest commission rates in the industry. Whether or not you decide to
use a full-service broker depends on your level of self-confidence, your
knowledge of the stock market and the number of trades you regularly
make.
Investors who wish to save on commission fees can use a 'discount stock broker'. These brokers charge much lower commissions
but don't offer advice or analysis. Investors who like to make their own
trading decisions and those who make many trades often use discount
brokers for their transactions. Some traders may use both types – there
is no reason why you can't have two brokers.
The least expensive way to trade stocks is usually with an online
brokerage. Both full-service and discount brokers usually offer
discounts for orders placed online. Some brokers operate exclusively
online and offer even better rates.
No matter what type of broker you choose, you must first open an
account. Each stock broker sets their own requirements for
maintaining an account balance but it is usually between $500 and $1000.
When choosing a broker look at the fine print and find out about the
fees involved. Some brokers charge an annual maintenance fee while other
charge fees whenever your account balance falls below the minimum.
There are two basic types of brokerage accounts. A 'cash account' offers
no credit – when you buy you pay the full amount of the stock price. A
'margin' account, on the other hand, allows you to buy stock 'on margin'
– the brokerage will carry some of the cost of the stock. The amount of
margin varies from broker to broker but the margin must be protected by
the value of the client's portfolio. If the portfolio falls below a
specified amount the investor will have to add more funds or sell some
stock. Margin accounts allow investors to buy more stock with less cash
thereby realizing greater gains (and losses). Because they involve more
risk than cash accounts, margin accounts are not recommended for
inexperienced traders.
Before choosing a particular stock broker the investor should
carefully consider his needs. Does he wish to receive advice about which
stocks to buy? Is he uncomfortable making trades on the Internet? If so,
he should go with a full-service broker. Technology savvy investors who
have the knowledge and confidence to make their own trading decisions
are better off with a discount broker.
After deciding which type, compare a few competitors. There can often be
significant differences in costs when all the annual fees and brokerage
rates are factored in. Try to gauge how many trades you expect to make
in a year, how much cash you can deposit into your account, whether you
wish to use margin accounts and which services you need. This
information will allow you to compare the actual costs of various stock brokers.
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