Online Trading 101: What You Need To Know To Successfully Choose An Online Broker

A quick Internet search will call up hundreds, if not thousands of online brokers online stock trading today that you can choose to begin your new career in online stock investing.

With such a bewildering array, how do you sort out the ones that appear to be right for you and choose the one you need to start making money?

Since the creation of the electronic trading industry in 1994, these e-brokers stocks have gone into business to assist you, striving to compete with each other and with traditional off line brokers to offer the cheapest rates (commensurate with the services they do — or don’t–offer). The selection is confusing, and before you begin trading you should first recognize the types of brokers available, and secondly research out their reputation, history, and the services they offer.

There are four basic types of e-broker; the one you should “go with” depends on your financial status and your experience with the market. Choosing the right one can mean a rewarding experience, investing in winners that can make you a lot of money. Choosing the wrong broker can result in, at best, a frustrating experience and at the worst can cause you to lose all or part of your investment.

Two Types and Four Categories

Their are two types of online brokers: Regular brokers and Resellers. Regular brokers will deal directly with you the client, while resellers are go betweens that act as an intermediary between clients and a large brokerage.

These fall into four Categories: discount/online brokers, assisted discount brokers, full service brokers, and money managers/financial advisers.

1) Discount/Online Brokers

The discount/online broker online brokers is basically just an order taker. You put in your request for a trade, online or possibly on the phone, and they make it for you.

You will receive no help from a discount broker, and it is up to you to do all research into the merits and prospects of the company you are investing in, as well as keeping up on economic news and stock market trends. You will get no “extras” from dealing with a brokerage of this type, and you will probably never speak to an employee.

While this will save you money in fees for the trade itself, the lack of assistance may in the final analysis cost you more money than trading with a firm that does offer assistance and advise to its clients.

2) Assisted Discount Broker

Somewhere between a full service broker and a discount broker is the assisted discount broker. They offer more advice than the discount firm but less help than that offered by the full service firm. These brokers usually have websites that offer more information that the discounts, assisting you with newsletters, general information and stock assistance. This generally distinguishes them from the discount broker. When checking out these types of brokers you should get a detailed picture of exactly what they offer (and what they don’t).

3)Full Service Broker

A full service broker will offer the same services as the traditional offline broker, giving you specific recommendations on stocks. They will be available to give you suggestions, advice, hints, tips and assistance throughout the trading process. Beginning with an assessment of your financial situation to determine what investment opportunities are best for you, they will put together a portfolio that meets your needs, desires and financial abilities. This will save you a lot of work, and is a great idea for someone who doesn’t have the time to research out your stock trading opportunities, and allows you to turn your investment over to someone who is qualified and able to help you.

4)Money Manager/Financial Adviser

A money manager or financial adviser handles specific needs, such as larger portfolios for investors dealing with large sums of money. Trained to take responsibility for investing and managing large portfolios, a good money manager will be expensive but is well worth it.

Brokers Insurance

Whatever broker you choose, make certain the firm is covered by the Securities Investor Protection Corporation which will protect your assets in a brokerage account for up to $500,000 in the event that the firm fails. This insurance is very important, especially with so many online brokerage firms these days.

Remember that the insurance does not cover you in the event of trading losses, even if the broker suggested the trades. You are still ultimately responsible for those losses.

The Final Analysis

In the final analysis, you must choose an online trading broker that you feel comfortable with: one that you can trust to handle something as sensitive as your money and investments.

After you have decided which type of company is best for you, you should do extensive research into your tentative choice as to their online reputation, length of time in the business, all costs and fees to be expected, including what you may need to pay to start investing or get into certain types of trades, the level of customer service they offer, and any services they offer managing and reviewing your portfolio.

Taking time to understanding your financial situation and investment needs; match them up with the right online broker and you will have a longstanding relationship that will be satisfying relationship and above all…


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