Choosing an Online Stockbroker – Different Types of Broker Services
The world has changed incredibly over the past couple of decades – and there is no greater indication of that than in the world of stock trading and investing.
In times gone-by, the majority of investors would pick their stocks via a traditional stockbroker at a brokerage firm. The transaction would involve paper based stock certificates being issued to the stock buyer. The types of investments available to the “average investor” were also highly limited.
Today, the same “average investor” can trade anything from single stocks to currencies, commodities and indices – all with the simple click of a mouse – and without ever leaving the home.
But with choice comes confusion – deciding on what stockbroker fits your needs like a glove can be a daunting process. This guide has been designed to give you an understanding of the different types of stockbroker services that exist, and help you decide which one is right for you.
Here are just a few of the many issues that you will need to consider when deciding on your preferred stockbroker:
- Do you feel comfortable executing your trades online, with one click ease, or do you prefer doing your business with an actual person, on the phone or even in person? The availability of technology has meant that firms are able to process large volumes of trades cheaply, so if you don’t need a person to talk with to make your trades then there are a large number of “no frills” online brokerage services that will allow you to do business for a few dollars per trade.
- How many transactions you make will go a large way towards deciding which brokerage service is the right one for you. Some firms will offer price breaks for frequent traders – so if you’re a day trader then you can find a service that’s far better equipped for your needs than if you were an infrequent investor.
- Do you require a basic “execution only” service or do you require some advice when making your trades? Clearly, an execution only service is going to be cheaper.
The Different Types Of Stockbroker Services Available
There are three basic types of stock-broking services available to the public:
- Advisory Service – Any firm that offers advice to the public as part of an advisory stock-broking service must be registered and authorised by the Financial Services Authority (FSA). The FSA is a government body that is set-up to ensure that financial companies comply with the many regulations that ensure a fair and fraud-free environment.
A company that offers an advisory service must ensure that any staff members that offer financial advice are adequately qualified to do so. A list of companies that are FSA approved can be found on the FSA website (http://www.fsa.gov.org).
Obviously, most stockbrokers will charge a fee for their advisory services. Typically, the stockbroker will discuss your investment aims and objectives and then recommend a range of investments that they feel would best suit your needs. You can, of course, accept or reject their proposals. Advisory services tend to be done via the broker in person – either at their office, your home or over the telephone.
- Discretionary Service – With a discretionary service, the stock-broking company will take a sum of money that you provide and invest this on your behalf. It’s significantly different to an advisory service because the stockbroker does not have to tell the investor about every trade that is made on their behalf – the stockbroker has a lot of “discretion” on how to invest the clients’ money.
- Execution Only – As the name suggests, execution only trades are when the broker is simply instructed to buy or sell a particular investment. The broker has no say about the trade (even if they thought the stock was going to drop by 90% tomorrow they are not obliged to say anything). This is the type of service that has recently been made available to the masses via online brokerage houses that typically offer trades for $10 or so each.
You’ll be spending a lot of time and money with your broker – so it’s worth taking the time to understand which broker is right for you.
