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How To Choose the Best Stock Broker

How To Choose the Best Stock Broker

How to choose the right stock broker can be the most important decision in your investment life. Fortunately, is here to guide you.

Buying stock is like buying a part of a business. Stock in a business is sold in units, and those units are called shares. As a citizen, you cannot roll up to a business and ask to buy a piece of it (actually you can, but there is a far easier way), which is why you need a stockbroker. You can buy shares through a stockbroker over the phone, in person or on the Internet.

What Is A Stock Broker?

A stockbroker is like a tool or vehicle through which you buy and sell your shares. Most US brokers are big businesses such as Barclays Stockbrokers, TD Ameritrade, Fidelity Investments, TradeKing, Charles Schwab and so on. The companies themselves are considered stockbrokers, but some of the individuals that work for them may also be called stockbrokers. You may approach a small brokerage made up of just one person and have that person do your buying and selling, or you may approach a brokerage and do it online. Or, you may call the brokerage firm you invest with and have a direct line to a broker that handles your investing.

You are able to buy shares directly from a company in some cases, in most cases you need some sort of stockbroker to do your buying and selling for you. Even if you buy and sell online, there is still somebody within a company that takes your instructions to buy or sell and then actions them.

What Can A Stock Broker Do For You?

Let’s assume you approach a stockbroker to help you buy and sell shares, there is still more than a stockbroker can do for you. The company or individual may broker other securities such as buying bonds, options, unit trusts, exchange traded funds, and other types of investments. The company or individual may offer limited banking services and most offer investment advice and their research for a price.

A stockbroker will charge you service fees and/or brokerage commissions. They make most of their money from fees and commissions they take from the people that use their services, though you have to imagine they are also doing a little trading themselves. Otherwise, it is like a car salesperson walking to work. The fees and commissions are charged based on what the brokerage decides, so you can shop around for a better deal if you wish. Remember that an institutional stockbroker makes money from companies and a personal stockbroker makes money from small businesses and individuals.

Opinions Are Free, But Advice Isn’t

Real stockbrokers are unlikely to give away very much free advice. They have to be registered with the Financial Services Authority in the UK, and in the US Anyone offering investment advice must be licensed with the SEC or state regulator as an investment advisor representative. However, a stockbroker may give opinions so long as it is made clear that it is not advice.

Stockbrokers (and stock brokerages) are usually either execution-only or advisory. When you open an account with an advisor, you are usually given an account executive or financial consultant, and he or she will advise you on how to invest.

Why Do I Want Somebody To Tell Me How To Spend My Money?

Paying for investment advice with a licensed advisor means it is illegal for them to advise you to invest in a scheme they know is a pump and dump scheme. A financial consultant is similar to an SEO (Search Engine Optimization) advisor on the Internet, or marriage councilor in that they help you navigate a subject that is otherwise tricky if you are left to your own devices.

A financial consultant (advisor) is not the same as a betting tipster. The consultant can give you considered opinions and educated guesses, but he or she cannot predict the future.

What Does An Adviser Do?

A financial consultant will offer guidance after you give him or her details about your finances, how you make your money, where most of your money goes, and what your short-term/long-term investing goals are. The adviser will give you access to in-depth research, and to his or her analysis of the research.

An adviser can help you reach your investment targets and help you navigate your way through a tricky subject. For example, you may want to put most of your money in the oil and petroleum industry because it is a commodity that is in more demand and yet there is less and less of it. However, when you look at the stock market you see hundreds of companies, and the bigger oil companies have shares that you cannot afford–so what do you do? A financial adviser will help you decide where to put your money in the oil and petroleum industry.

What Does An Execution-Only Broker Do?

An execution-only broker will usually have lower costs, fees and commissions because all he or she is doing is making trades by buying and selling.  An execution-only broker also offer an unbiased service, which means your bone-headed purchases that turn out to be winners will not be commented on, nor will your smart investments that turn out to be flops. Execution-only brokers will not offer advice, but they often have very good educational material, especially on their websites, because it works to their benefit if you learn how to become a great investor.

An execution-only broker will not give any guidance at all, which is good for knowledgeable investors and bad news for people that are not sure what they are doing. Execution-only brokerages will have very low fees, but there are often numerous hidden fees, especially for things you expect to be free such as email notifications, transfers, issuing shares certificates, etc. Also, Internet execution-only brokerage often has minimal customer support too, though they may have reasonably-okay tech support.

The Choice Is Yours

There are comparison review websites for brokerages, so you should view as many as possible to get a clearer view of what is out there. You need to match how you invest to the investor. For example, if you prefer to save a lot and make big investments, then you want a broker that pays interest for keeping money in your account whilst you wait and build it up to buy. If you want to make numerous small purchases, then a broker with lower fees that can accommodate numerous small trades is required.

Firstly, find out if your bank offers brokerage services. Otherwise, you can run a search on Google and it will churn out plenty of brokerages both large and small. Compare commissions, but also consider hidden fees, if interest is paid on the money in your account, how trustworthy the company is, and consider its online reputation.

About The Author

Ben Todd

Ben was a seriously broke graduate student with bad credit who after finding himself rejected for any sort of credit card or loan for most of his adult life, finally decided to get his financial life in order. ' He spent several years reading as many financial advice books and blogs as he could. And suprisingly, Ben found he actually LIKED the topic of personal finance; after fixing his own finances, starting his own successful work at home website business, and using his earnings to get out of debt, created to help others do likewise!

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