Monday, April 27, 2009

What Care is Needed to Choose an Online Stock Broker?

The Internet has opened information and opportunity to people all around the world ever since its inception. Twenty years ago if you wanted to research stocks you had to go down to the library and hope they had a good financial records section. If you wanted to trade stocks you had to have a real life broker who placed orders for you over the phone. You would call them to get the most real time stock quotes and then have them execute your order.

Prices were high and service was a good as it can be with a process like this. The biggest and best customers got the most attention and there was little room for the little guy.

But the Internet changed all of that. Firms like Ameritrade, E*Trade, and Scott Trade opened up and allowed customers to research stocks instantly and execute their own orders. With no middleman and no high fees, these companies opened up the market to the exploding Internet population.

The advent of this form of trading went hand in hand with the “tech bubble” of the late 1990’s and helped fuel the huge trend of day trading. This meant relative amateurs making their living off sitting in front of their computers trading stocks.

While some argue that online brokerages have their disadvantages, they have most certainly changed the face of investing. There is a plethora of companies out there offering online trading services, so how do you choose the one that best fits your needs?

Here’s a quick guide on how to choose an online broker.

1. Commissions: How much it will cost you to buy and sell your stocks is one of the biggest factors in choosing an online broker. While prices range online, they are lower than full services “real” brokerages. Make sure to read the fine print when signing up for a brokerage. Brokerages will advertise low commissions but will only charge those on accounts with a certain minimum deposit or level of trading activity. Also remember that while price is important it’s not everything. Just because it’s the lowest price doesn’t mean it’s the best for you.
2. Minimum balances: Some online brokerages, like “real world” brokerages, require a minimum deposit to have an account. Sometimes these amounts might be way higher than the average investor can come up with.
3. Minimum trading: Some brokerages mandate that you make a certain amount of trades during a quarter or year. If you don’t meet these requirements then you don’t get the best commission structures or can even get hit with an “inactivity fee”.
4. Interest rates: Some online brokers also offer banking accounts with very competitive interest rates. Find out what they offer and at what rate to make the most of your cash in between trades.
5. Other products: In the same vein as bank accounts, find out what other products these brokers offer. Many can let you buy and sell foreign stocks, CDs, bonds, options and gold or precious metal certificates.
6. Customer service: It’s key! This is your money we’re talking about, so you want to make sure there are people on deck ready to help you 24 hours a day. Go online and check out reviews by actual users of these brokerages to find out the nitty-gritty on their customer service.

Your options are varied when it comes to choosing an online broker. They run the gambit from the ultra discount brokerages, to more full service financial institutions. A lot of brick and mortar banks not only offer online banking but also brokerage services to compliment them.

Take a look around online and even at your own bank and see what they have to offer. With online trading the possibilities are endless!


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