BannRonn's Stock Trading & Investment

How to Choose a Stock Broker?

Stock Broker handling customer orders.Essentially, there are two types of brokers for trading the financial markets: the full-service brokers, like Goldman Sachs and Morgan Stanley, and the online discount brokers, like TD Ameritrade, Scottrade and Interactive Brokers. With the wide acceptance and penetration of trading online via the internet, traditional full-service brokers have had to compete head-on with online discount brokers as these online stock brokers and futures brokers used aggressive low commissions to lure investors and traders away from the more traditional brokers.

The common questions most new investors and traders ask are: How can these discount brokers offer such low commissions and still stay financially viable? Is it going to be a case of "You get what you pay for" or is there more to this than meets the eye?

What Type of Investor/Trader are You?

It must be understood that the full-service brokers and online discount brokers each serve their own niche markets and clients, where they offer different levels of services for different types of investors and traders. Ideally, the best way to choose the type of stock broker or futures broker you need would be to know what kind of investor or trader you are and also the frequency and size of trades that you intend to put on. All this sounds good, but alas, someone new to the markets may not be in a position to determine this.

If you are new to the financial markets, it is highly recommended that you initially choose a full-service broker until you learn the ropes. An experienced and trustworthy broker would be able to impart valuable knowledge such that you are able to navigate the markets on your own. There are of course many horror stories about "account churning" and fraud that will scare off any new investor but in reality, these are the exception rather than the norm. It pays to trust your instincts rather than the "sales pitch" when dealing with brokers and you should run at the first sign of your instincts sounding off alarm bells.

Common Mistakes Made By New Investors

One of the most common mistakes made by new investors is that their expectations of their broker may not be realistic. They do not view the broker as a person who offers them a service in order to trade & invest in today's complex financial markets, but rather their expectation is that their broker is there to give them the latest hot tips and insider news so as to make them their millions from the markets. Sadly, these are the kinds of expectations that some brokers actually try to fill at the detriment of their business. You have to remember that although brokers have more experience and can usually tell whether a stock is a good buy or a dog, better than the average investor, the fact of the matter is that many other external factors affect the market and the broker may not be the best informed on what is happening.

Taking Control of Your Financial Portfolio

Once an investor has learned the ropes, the investor can decide, if he so chooses, to take "more control" of his portfolio by getting an online discount broker. The other reasons to make the switch to a discount broker could be that the investor is now trading a larger size and therefore needs to find someone who can offer him lower commission rates on high volume trades, or simply that the investor's frequency of trades has increased and calling the broker on the phone each time would be too slow and time sensitive to be viable. It must be noted that once a solid relationship has been established with a good full-service broker, more often than not, it is possible for the client to negotiate very competitive commission rates to such a point that it makes switching to a discount broker generally not worthwhile and hardly cost & time effective.

In conclusion, investors are in the markets to make money. It is the individual investor's responsibility and nobody elses to find a right broker that will aid the investor in being profitable.

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