Choosing a Broker

Post date: Oct 15, 2011 4:22:43 AM

When you first start out as a trader there are a lot of things that you have to take into account. First and probably most importantly is that you need to know what type of brokerage service you want to use. There are plenty of brokers out there that want your money, however they all charge different rates for commission, and many of them offer different amounts of help. The major difference in brokerages is between what is known as a full service broker and a brokerage known as a discount broker. What you need to know is that a full service broker is most likely going to be more expensive than a discount broker. In the brokerage industry cost is everything, so how can these full service companies get away with charging more? How do they manage to stay in business? Well they give you a lot more in return than a discount brokerage does. A full service broker will allow you to call in to them and ask for advice. They have professionals on hand to offer assistance and to give you investment ideas. If you aren’t sure if the next company you are looking at could be a good buy or a wait and see, then you can call up your broker and ask for advice as to how you should go about it. You can also ask your broker to trade for you automatically. You can ask your broker to decide what he or she thinks is your best bet in the markets right now and invest your money for you.

Now discount brokerages are completely different. They are usually much cheaper than full service brokers, and in return they offer much less assistance, if any at all. Discount brokers will have a website where you log in and make your trades yourself.

How does one decide whether they want a full service or discount broker? Well it all depends on your confidence level when it comes to making your own investment decisions. Do you think you can do your own research? Can you follow the markets on your own, and conduct your own fundamental and technical analysis? Then a discount broker is for you. Do you think you would rather pay someone to do the research? Not confident enough to trust your own judgement in the markets? Then you may be better off paying extra for the additional help.

You can expect to pay anywhere from $5 to $20 per trade with discount brokers and up to $100 per trade with full service brokers. I highly recommend doing research into customer satisfaction and and rates before you decide what company to go with. As a new trader you will be spending most of your money on commissions, and you want to make sure that you keep that cost as low as possible.

As a side note, when you first begin trading, make sure not to over trade. The most common loss of profit for new traders comes from over trading. If you are paying $20 per trade and you are not making that much each time you make a round trip, then you are losing money.