Buying Stocks Online:
Ask Yourself Some Basic Questions First
What Should I Look For in an Online Stockbroker?
Before you begin investing, you must decide what type of investor you are. What kind of trades will you be making? Will you be buying stocks and holding them for a long or short period of time? A stockbroker or brokerage firm buys and sells stocks on your behalf. There are many online brokers to choose from but you have to take a few things into consideration before picking one. You must have the best trading tools available, and you have to know how to use them. First step, find an online broker that you can work with.
Two most common types of brokers:
Discount Broker:
Primarily an online broker. A Discount Broker is basically a no-frills online brokerage firm that keeps their commission costs low by providing only the basics and does not provide any investment advice. Most stock traders use a form of discount broker due to the quantity of trades they make.
Full Service Broker:
Primarily an offline Broker with online access available. A Full Service Broker usually has many licensed stock brokers on hand to offer investment advice, personal financial planning, retirement advice and an online trading platform. A full-service brokerage charges much higher commissions. They usually cater towards higher net worth individuals.
What type of trading you will be doing (scalping, day trading, swing trading, options or buy and hold)? If you are best suited as a scalper or day trader, than commissions will be a huge factor that can save you from hundreds to even tens of thousand of dollars a year by choosing a discount broker.
Example
2000 trades per year from a Discount Broker at a commission of say $5.00 per trade comes to $10,000 per year in commissions. The same 2000 trades per year at another broker that charges you $20.00 commission per trade= $40,000 per year.
Brokerage features:
Speed and execution quality of trades
If you are going to be “scalping” or “day trading”, this is going to be very important. The speed of the trading platform that you will be using must be as fast as possible.
Customer Support/Service
The level of customer service across the different online brokers can vary greatly. Refer to online reviews of customer service for the different brokerage houses.
Get the customer service number for the brokerage house and test them. See how quickly each one answers the telephone. Make sure they have email options and live chat options Do you want to speak only with your broker or do you want a customer service department/ tech support 24 hours a day?
* Make sure the online broker has deposits backed by the SIPC.
Online Brokerage Resources
- Trading Platform is the most import feature. Free real-time quotes, buying power updated in real-time, real–time charts, streaming news? Is the platform easy to use? Are there tutorials to learn its features?
- Web site user-friendly? Tutorials for how to use website.
- Customer service 24/7 by phone , email, instant message or live chat?
- What is the commission schedule?
- Analyst reports (third-party), email and/ or cell phone alerts, options chains, graphs, watch lists, option chains, investment calculators and virtual trading.
- Free tutorials, webinars , newsletters, blogs, seminars, forums, glossaries and definitions
- Investments offered- stock, options, mutual funds and exchange-traded funds, access to international markets, investment services or packages for retirement.
Before selecting the brokerage house, thoroughly examined their web site and see if it fits your needs. Take an online tour if one is available. Test their trading platform if possible.
Once you decide to open an account there will be several documents for you to fill out. Make sure you read and fully understand each document and ask any questions that you may have. If the broker or customer service cannot or will not answer any of your questions consider another broker.
