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What Stock Brokers Do

    IndianMoney.com Research Team | Tuesday, April 21,2009, 06:47 PM
 

Stock Brokers handle the majority of the buying and selling on the stock market, and the average investor will use a brokerage service to hold his trades. There is a wide range of brokerage services available. There are brokers who suggest many services for aiding their clients meet their investment goals. These 'full-service brokers' can give guidance about which stocks to buy and sell and often have full research facilities for analyzing market trends and predicting movements.

These perks are not free, full service stock brokers charge the maximum commission rates in the industry. Whether or not you make a decision to use a full-service broker depends on your level of self-confidence, your knowledge of the stock market and the number of trades you frequently make.

Investors who desire to save on commission fees can use a 'discount stock broker'. These brokers charge much lesser commissions but don't offer advice or analysis. Investors who wish to make their own trading decisions and those who make many trades regularly use discount brokers for their transactions. Several traders may use both types; there is no reason why you can't have two brokers.

The least costly way to trade stocks is generally with an online brokerage. Both full-service and discount brokers frequently offer discounts for orders placed online. Some brokers operate entirely online and offer even better rates.

No matter what kind of broker you decide, first and foremost is to open an account. Each stock broker sets their own requirements for maintaining an account balance although it is generally between $500 and $1000. When selecting a broker look at the fine print and find out regarding the fees involved. Several brokers charge an annual maintenance fee while others may charge fees whenever your account balance falls below the minimum.

There are two fundamental types of brokerage accounts. A 'cash account' presents no credit, that is; when you buy you pay the full amount of the stock price. A 'margin' account, on the other hand, allows you to buy stock 'on margin', that is, the brokerage will carry some of the cost of the stock. The amount of margin differs from broker to broker although the margin must be protected by the value of the client's portfolio. If the portfolio drops below a specified amount the investor will have to add more funds or sell some stock. Margin accounts allow investors to buy more stock with less cash in that way realizing greater gains (and losses). For the reason that they involve more risk than cash accounts, margin accounts are not suggested for inexperienced traders.

Before choosing a particular stock broker the investor should carefully take into account about his needs also. Does he like to receive advice about which stocks to buy? Is he not comfortable making trades on the Internet? If so, he should always try to go with a full-service broker. Technology knowledgeable investors who have the knowledge and confidence to make their own trading decisions are better off with a discount broker.

After deciding which type, compare with quite a few competitors. There also are regularly, significant differences in costs when all the annual fees and brokerage rates are factored in. Try to estimate how many trades you expect to make in a year, how much cash you can deposit into your account, whether you like to use margin accounts and which services you need. This information will permit you to compare the actual costs of various stock brokers.

IndianMoney.com Research Team

The research team at IndianMoney.com comprises of certified and experienced professionals who share the company's vision to make every Indian financially literate by equipping every Indian with right and unbiased advice. IndianMoney.com research team provides newsletters, articles, videos and FAQs on various financial products and concepts only to help you make wise financial decisions.

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