Choosing a Broker

Depending on the type of investing that you plan to do, you may need to hire a broker to handle your investments for you. Brokers work for brokerage houses and have the ability to buy and sell stock on the stock exchange. You may wonder if you really need a broker. The answer is yes. If you intend to buy or sell stocks on the stock exchange, you must have a broker.

Stockbrokers are required to pass two different tests in order to obtain their license. These tests are very difficult, and most brokers have a background in business or finance, with a Bachelors or Masters Degree.

It is very important to understand the difference between a broker and a stock market analyst. An analyst literally analyzes the stock market, and predicts what it will or will not do, or how specific stocks will perform. A stock broker is only there to follow your instructions to either buy or sell stock not to analyze stocks.

Brokers earn their money from commissions on sales in most cases. When you instruct your broker to buy or sell a stock, they earn a set percentage of the transaction. Many brokers charge a flat per transaction fee.

If an investor chooses to place his trade orders online, then the brokerage fees are very low. These low fees are perfect for investors and traders who have sufficient knowledge of the stock market and are clued in on what stocks to buy or sell.

Most online stockbrokers provide their clients with a range of online technical and fundamental tools that help them in making their investment decisions or trading calls. The stockbroker will usually charge an additional monthly fee for providing some of these tools.

There are two types of brokers: Full service brokers and discount brokers. Full service brokers can usually offer more types of investments, may provide you with investment advice, and is usually paid in commissions.

Discount brokers typically do not offer any advice and do no research they just do as you ask them to do, without all of the bells and whistles.

So, the biggest decision you must make when it comes to brokers is whether you want a full service broker or a discount broker.

If you are new to investing, you may need to go with a full-service broker to ensure that you are making wise investments. They can offer you the skill that you lack at this point. Naturally, a stockbroker who supplies investors with information will charge a higher rate of brokerage. However, if you are already knowledgeable about the stock market, all you really need is a discount broker to make your trades for you.

The stock market is a very volatile trading place and choosing the right stockbroker can make all the difference to an investor/trader. Nowadays, many investors/traders are latching on to online trading and there are many stockbrokers out there who offer online trading at discounted commission fees.

Every client needs to deposit some money with his stockbroker to cover the fluctuations in the price of the stocks that he buys or sells. The deposit will depend on how much financial exposure the client wants for his market trades. It is not necessary that the stockbroker who charges the lowest deposit is the best.

It is important to select a stockbroker who offers speed of service. This holds good for orders that are placed on phone. In an online trade, the confirmations are instantaneous.

Check the background of the advisor you choose, as there are a lot of brokers out there looking for a quick fleece. The best brokers will have years of experience, a variety of investment backgrounds, and will probably cost you much less than you might think.