Should You Use A Low Cost Stockbroker?
Summary: Is a low cost stockbroker - otherwise known as an execution only stockbroker - right for your investing needs? The lowest cost level of service also happens to be the most popular! This page discusses the execution only service level.
Perhaps you are new to investing or have been burned in the past. You're tired of giving your money away to a glorified money handler. So you are on the search for a low cost stockbroker. Luckily for you, there are a lot of options on the market.
First, let's go over the definition of a stockbroker. This is a person or company that is registered with the
National Association of Securities Dealers
(in the United States) and is permitted to make stock purchases on your behalf. The vast majority of stock brokers have a degree in finance or business, but this is not necessary.
Some states require 4 tests, some only the one exam put out by the National Association of Securities Dealers. Either way, at a minimum a stockbroker is the only person who can actually put your money where you want it to go.
Before choosing a firm, check with the securities regulator in your state. Use this to verify the validity of the low cost stock brokers credentials and whether or not he or she has any complaints filled against them. You can check their credentials
Should you be worried about using a low cost stockbroker? In a nutshell, absolutely not.
The typical costs for single transactions vary from $7-20. Sometimes you also have to pay an annual account maintenance fee of $25-200 for accounts with less money or few transactions. Each brokerage has the right to set these fees within reason.
Many people prefer full service brokerages because they do not have the time to research their own stocks. They would rather leave it up to their brokers to research, mold a plan and pretty much do all the heavy lifting. This is for people that would like to benefit from owning stocks without the effort of research and portfolio monitoring.
A low cost stockbroker is a great choice for someone who is more involved with their investments. Someone who has some background in the investment world or has the time and energy to spend on building a great portfolio. Often, a discount broker will concentrate on a small range of stocks and products and they do not give out advice or do any research. They simply act as the gatekeeper on your behalf.
In the United Kingdom, for example, this low cost route is known as 'execution only'. This is not because of any firing squad reference but simply because they execute a trade and provide no other services.
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As an example, should you ask such a broker anything about a company, they will politely refuse to answer the question. In this regard, there is very little difference to an
There are those low cost stockbrokers that are cheaper simply because they have the volume to compensate for smaller commissions. Larger corporations can still be competitive in their prices because they have so much business to work with. As an investor it is entirely up to you to pick who will handle your money.
Here are a few things to remember when looking for a low cost stockbroker. One, think about the money you are willing to invest. Is it a few thousand dollars or hundreds of thousands. Are you looking to invest in mutual funds or a combination of a lot of different types of things? Make sure that whatever product or service you require is offered by the stockbroker you are looking considering.
Lastly, feel free to compare small brokerages or even individual stockbrokers with big name companies. You might find that a larger company has exactly what you need for a lower price. It's your money, so take control of its future.
To read more about brokers and brokerages, please follow these links:
Stockbrokers - The Right Firm For You?
What Does A Stockbroker Do?
Should You Be Using An Internet Stockbroker?
Should You Be Using An Advisory Management Stockbroker?
Should You Be Using A Discretionary Management Stockbroker?
What Are Typical Stock Market Transaction Costs?