Online Stock Broker: What Online Stock Brokerages Do and How to Choose One

Online Stock Broker: What Online Stock Brokerages Do and How to Choose One

With the ease of online trading, more and more traders are choosing online stock trading over customary floor trading. Online trading is known for providing traders and investors with lots of great opportunities. And this is the main reason for why every second individual with business mindset is trading online. With an amazing growth in the number of traders and investors, the number of online stock brokers and brokerage companies has also significantly outgrown.

Choosing the Right Online Stock Broker for Your Trading

When it comes to choose an online stock broker or firm, you need to be extra careful especially if you are a beginner. Make sure you pick the one who is known for their reputation, quality services, and charges a competitive price. The broker should have a properly-established office instead of working from a virtual workplace. Likewise, they should be able to provide you with a user-friendly and secured online trading platform. The broker must also be quickly responsive to your queries as well as capable of executing all your trading orders fast. It is highly recommended to check the testimonials and reviews of the online brokerages available on diverse discussion forums over the internet.

Types of Online Stock Brokers

Online brokers or brokerage firms can be categorized into two main types to avail a better understanding over their services.

  • Full Service Brokers – A stock broker, whether online or offline, can offer a wide range of financial products and services to investors and traders. They not only offer financial instruments, such as, stocks or bonds but also provide you with necessary investment assistance. If you choose a full service brokerage firm, make sure they have a team of financial experts and brokers who too offer market research to their customers.
  • Discount Service Brokers – Brokerages offering discount services, on the other hand, can only help you with transactions of the trade orders placed by you. They do not provide you with investment assistance or research and you will only find them there to execute your orders without indulging themselves into decision making process. Additionally, these brokerages charge fixed rates from their customers and get returns on the number of business they do.

Price-Based Comparison of Online Stock Brokers

When choosing an online stock broker, you can compare different brokers or brokerage companies with a focus on the price per deal. The cost to make a trade has significantly come down in the recent years. Before the online brokers entering into the industry, traders needed to pay around $50 to make a trade with a stock broker. It was unsurprisingly the price that put people making those trades in it for the long haul. However, it is no longer the case as the trading prices have come down in single digits and almost every trader with any budget level can make deals for both short-terms and long-term basis.

It is somewhat a surprising fact that traders looking for the brokers still compare them based on price and look for the lowest possible price they can avail. Addressing this matter, online brokers have consistently reduced their prices in recent years. There are also some brokers that have become renowned because of their best price and quality services over the last 5 years. When you compare online brokerages based on price, it is important to understand the variation of the pricing structure. There are three main categories of brokers:

  1. Flat Rate without Exceptions – Many brokerage firms charge a flat rate no matter what the circumstances are. An online stock broker will cost you $9.99 as TD Ameritrade charges regardless of what type of trade you make.
  2. Flat Rate with Exceptions – There are several brokers who charge a flat rate with a reference mark. That reference mark is intended for certain conditions where an online stock broker will charge extra for certain types of trades. For instance, many brokerages cost a little extra to trade low-priced stocks which is usually less than one dollar.
  3. Tiered – You will also come across those brokers who have a tiered pricing structure which allows you to pay different prices depending on the number of trades you make with them over the course quarter.

Advantages and Disadvantages of Online Stock Brokers

Advantages – There are many benefits of online stock trading though it comes with security risks as the major concern. Similarly, online brokers offer easy online accessibility and have some pros and cons too. Having an online stock broker allows you to instantly place your trade orders without missing on any good opportunity. You can interact with your online stock broker at any time and from anywhere in the world and do all kinds of financial transactions in online trading in no time.

Disadvantages – Besides advantages, there are several cons of using an online stock broker, and one of them is online security and technical faults that have always been a serious threat to online traders. Furthermore, you cannot leverage personal services from an online broker as you may do with traditional brokers who are considered to be your best friend throughout your stock trading career. With online brokers, on the other hand, you are usually alone to move ahead in this highly competitive and risky type of trading. They will just provide you with online trading platforms and you will have to take a call on your investment decision yourself. An online stock broker, however, will assist you with their inputs and suggestions to make better deals and wiser investment decisions.

Online stock trading is an easy way to do a business and online brokers provide you with a complete set of online trading platforms. It is, however, imperative to approach well-reputed and experienced online brokers in order to do quality trading. Your online stock broker must be able to help your process the trade orders instantly and respond to your queries without any delays. Make sure you conduct some background research about the services and the price they are offering before choosing a broker.

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