There is a lot of confusion when you first get going in stock market investing. Many are confused about how to get started at all. Who do I go to? Who do I trust? Most people begin investing with an employer sponsored program or by going through their bank. That’s fine to get you the information you need, but most banks charge way too much in fees and make the whole process of investing way too cumbersome for most average individuals. For that reason individuals who are getting started investing will want to survey the land of brokerage houses.
But what is a brokerage house? Who is a broker? Why do I need to go through a broker? Which broker is right for me? All excellent questions; let’s tackle them one at a time.
What is a brokerage house: You’ve seen the commercials; “Talk to Chuck (Charles Schwab)” has a particularly catchy (if not somewhat dry) series of commercials on TV. Brokerage houses are everywhere: eTrade, TD Ameritrade, Merrill Lynch, Wells Fargo, Bank of America, and countless others are out there trying to earn your business. But just because a brokerage house has a name you recognize doesn’t necessarily mean that it’s a brokerage house you should get behind.
Banc of America (the discount brokerage arm of Bank of America) recent scored last in the 2010 SmartMoney Broker Survey (1) for charging as much as $54 for operator assisted trades. You don’t want to throw good money into the market blindly but you certainly don’t want to spend fifty four bucks to get a live person to help you with a trade.
Why Do I Need a Broker: This one may be the kicker; with all the information available to us in the world these days, why do we even need a broker? Well because you’re not licensed to trade stocks, for one thing. Investopedia (2) reminds us a broker “acts as an agent for a customer and charges the customer a commission for its services.” So you need someone who is able to make this trade for you; you have to go through a broker.
As research strategist in chief you can make your own investment decisions. A broker is not a counselor to advise you on which way they think the trade will go down once you enter the market. But to get the stock you want at the price you want you need to go through a broker.
Of course you’ve done your research; you have your stock picks, now you want to know who is the best broker for you. If you are a heavy trader and you don’t want to spend a lot of money on your trades you should go with the lowest priced broker. Just2Trade is the recent winner in the SmartMoney survey for charging $2.50 per stock trade. Yowza, that’s cheap. You may be mobile and decide you need accuracy and speed; Fidelity won out in the 2010 SmartMoney survey for trading tools.
It used to be that only the very well endowed and wealthy could play at stocks. Now stock trading is for everyone. You just need to find the right broker for you so get out there and get informed about the different options available to you. Then pony up a little bit of money and get trading!