Discount Stock Brokers: What You Need To Know

2007-03-08 10:33:40

( Online Shopping )



What Are They?

Discount stock brokers charge considerably less commissions than full service brokers; but this is because most discount stock brokers only act as executors of your stock trades and rarely offer customized advice on what stocks to buy or sell. Discount brokerage firms do provide most of the services of full service brokers except for investment advice. Most operate online or over the phone and offer execution of stock trades including limit orders as well as trade U.S. treasuries and bonds. Some may offer free mutual fund transactions and even trades of precious metals. Discount stock brokers vary greatly in the fees they charge and the services they offer. It is a good idea to compare first and ask a lot of questions before signing up with a discount stock brokerage.

Types Of Discount Stock Brokers

Discount brokerage firms have branched out into several categories in recent years. This is due to increasing competition in the industry, resulting in many of these firms evolving into offering more services other than bare stock executions. One type of discount brokers is called full service discount, which offers the same range of services of a full service broker at half the cost. Most have local offices, an account representative, newsletters and market related literature and research. Discount brokers meanwhile, are similar to full service discount brokers with the exception of having branch offices and extensive research materials. They charge less than half the amount full service discount brokers charge for commissions. Deep discount brokers have a limited range of services offered and often charge a flat fee. Finally, computer or online discount brokers are similar to deep discount brokers only their services are geared for internet savvy clients. Their online trading options are usually cheaper than direct broker consultations.

How To Pick One

The wrong discount stock broker might cost you more money instead of giving you savings. It is crucial to ask questions before choosing a discount broker to avoid costly mistakes. First, ask whether they provide the services that you need and want. Consider the fees and charges that come along with these services. Ask the scope of market research and literature they provide. Verify their credentials and track record as well. Also, inquire if your account is insured with the Securities Investor Protection Corp. (SIPC) to protect your funds. Finally, test their customer service options. At some point, things will not go as planned and mistakes will be made. Find out about the reliability of their phone and online customer support as well as their backup mechanisms in case of technical problems.

Hiring discount stock brokers is a great idea if you know what you are doing. However attractive the potential savings may seem, discount stock brokers are not for everyone. Unless you are comfortable enough to make your own investing decisions and perform your own research, you are better off with a full service broker, at least for the meantime.


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