A broker is the person who handles transactions (mediates deals) for you when you are investing. In order to trade online you have to open an account with an online broker. Here is a comparison of 4 major online brokers which are currently the best in my mind.
There are many factors to consider when selecting an online broker. The comparison table gives you some of the basic factors such as trade costs and minimum fund requirements, but there are other factors to consider. A quick note, any thoughts expressed here are my opinions only, and you should also do your research. Selecting the right online broker isn’t a make or break decision, but switching to a different broker isn’t without cost, so you should choose with care.
Some factors to consider include:
Customer Service – This is number one for a reason, you don’t want to be stuck hanging on a phone or waiting for an e-mail to some back to you for hours at a time. Service includes both quick response time and correct answers. If you can find current users, ask about their experience with CS. Most of the major online companies are pretty good with customer service, but you don’t want to be wasting time dealing with this.
Pricing – Since the comparison chart goes into this, I will not go into detail, but price still in a major concern. Despite the fierce competition out there, prices and minimums are still all over the place. Read carefully before signing up, and understand what you are getting into. In addition to trading commissions, brokerages usually charge many other fees, such as inactivity fees, wire transfer fees, for purchases of no-load mutual funds, etc. So make sure you check everything before signing up. You do not want to end up paying for things you don’t need.
But remember, cheaper price doesn’t always mean you will get more for your money. If prices are unrealisticly low, they had to cut corners somewhere. On customer support, for example. It is better paying a bit more on trading comissions than dealing with bad customer support.
Resources – Most online firms offer some sort of research resources, so you can check out different companies and see how they have done in the past and check out annual reports and a plethora of other items. Some offer very little along these lines. Do you need to be able to check out companies before you invest, or are you just following the suggestions in a newsletter or the advice of “Uncle Bob”? I would highly recommend checking out any stock before blindly following a recommendation.
Selection of investment products – This is also a very imporant factor and even though all brokerages offer stocks traded on the major exchanges, not all let you invest in other investment products. You might want to invest into mutual funds, (OTC) bulletin board stocks (if you are willing to take high risk) or options, government bonds, corporate bonds, etc. So once you figure out what you want to invest in, be sure to look into this before signing up.
Company History – You may find that a particular firm has all the things you are looking for and you are excited to get investing, but first you need to see if they are legitimate or what their history is. Did they just open their “digital doors” last week? Are there complaints at the Better Business Bureau about their work practices? Don’t be in a rush to be the first user at a firm, even if their pricing is great. Most times when things look to good to be true, there is a reason for it.
Cash policy – Most firms will give you some minimum return on cash that is floating in your account. Sometimes it is little details like this that will tell you about the company. “The devil is in the details” as the saying goes, and a company that brushes over the details, may not give you the service that you deserve. Also check if they offer credit cards, ATM cards, direct deposit, and other banking features.
Full Service or Discount – We’ve gone over this in the main section, so I won’t go into detail, but you need to decide if you are looking for full or discount service. Generally on-line means self-service, but you can find online full service brokers. Remember that the more you know, the less you need full service, but again, this is a personal choice.
Last, but not least, is availability. In the early days of the Internet, America On-line would boast of 24 hour unlimited access. The trouble was that many times when trying to get online, dial-up users would get non-stop busy signals during peak hours. Flash forward to your broker. You have a stock that you want to get in on…today…if their site doesn’t have enough access for many users at one time, you may get shut out. This is almost a non issue lately, but still is a factor with some smaller outfits. Also check if they offer touch-tone or live person phone trading, in case you do not have an access to the Internet. This can come in handy as well.
There are many details in this article you may want to review again before selecting your on-line broker, and this isn’t a panacea of information. You will need to do your due diligence when selecting a stock, start by practicing due diligence in finding your on-line broker.
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