Using discount stock brokers makes sense once you begin to take control of your own investments. A full service stock broker has much higher transaction costs but, as the name suggests, comes with a full range of services. This may include investment advice or asset diversification. When you implement your own strategies, you provide these services and no longer need to pay for them.
Notice that a discount broker is an online stock broker. You will be placing trades online if you want the discount price. If you are not comfortable with this, look for an online broker that offers placing trades by phone as an option. NOTE: you will pay more for this service. Some of the discount brokers have local brick and mortar offices as well.
Certainly, low cost of execution is important. For the most part, you will be able to have your trade executed for less than $10 US. At many your trade will be executed for less than $5 US. Trading costs at some brokers are a function of the amount of money in your account and/or how often (“actively”) you trade. Look at the conditions regarding costs carefully. If you use margin, determine the rate.
Unless you are trading illiquid stocks, execution should not be an issue, but the quality of execution does affect the cost of the trade.
It is useful to have access to company information as well as real-time trading information within the broker’s website once the position is open. So take a look and see if the criteria you use to select/manage stocks is available on the site.
Stock screening, portfolio management, and asset allocation tools may be available within the site. As you build positions in a strategy, the ability to separately monitor the actual performance of each strategy is huge. This is true for strategies where you place the order as well as for auto-trading (when orders are placed for you by a strategy subscription service).
Managing an open position may be the single most important aspect of the services offered by a discount stock broker. If you rely on alerts or sophisticated trading orders to trigger a
trade, the broker of choice will need to offer these.
Another consideration is the type of securities you trade. So if you trade options as well as stocks, look for a broker who handles both well. Costs for different equities (Mutual Funds, Options, Bonds) should also be checked if applicable.
The bottom line - select the broker providing the tools you need. Unless you trade frequently, a dollar or two a trade is probably not significant in comparison.
An overview of discount brokers with recent public reviews or those where we have personal experience.
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