How To Chose Your Broker Part 1
Before you can begin investing, you are going to have to open a brokerage account. This account will allow you to buy and sell equities, options, bonds, mutual funds, treasuries, exchange-traded funds, real estate investment trusts, and more. Each time you execute a trade, you will pay your broker a commission. Depending upon the type of brokerage firm with which you have an account, your commissions can be very low (as little as $8.95 per trade or less) or very high (hundreds of dollars depending upon the size of your transaction).
Traditional vs. Discount
A traditional or full-service broker is one that offers clients a complete array of services—individual attention through personal contact with a broker that is familiar with your portfolio, research products, and asset allocation advice. All of this comes at a price, of course. Commissions and fees for traditional brokerage accounts can be many times as much as you would pay at a discount broker.
A discount broker, on the other hand, performs a single task: it executes your order, be it market, limit, or whatever. In some cases, you don’t even talk to a person! The advantage of a discount broker is a lower commission rate. Period. No free toasters, hand-holding, or “hot tips.”
A broker will act as an intermediary between you and the stock market. He or she will seek out buyers for stock you want to sell and find sellers of stock you want to buy. Full-service brokers also provide research and make recommendations. Discount brokers simply execute trades.
How do you know which one is right for you? It depends upon your personality, your investing experience, and the complexities of your trades. If you are capable of making individual investment decisions on your own and don’t want input from an outside party, go the discount route. If, on the other hand, you need someone to explain the difference between market capitalization and enterprise value, you may want to go with a traditional broker.
