Stockbrokers are the people who look after the buying and selling on the stock market. They are the guides of the investors in the market, and especially of the amateur investors who have little experience of the manner in which the market works. Brokers can provide a large number of options to the investors so that they may achieve whatever goals they might have. Such brokers will tell the investors when to buy or sell stock, and they also provide results of market trends they analyze and predict which way the market would be likely to move. Brokers who provide such additional facilities are known as full-service brokers.
Full-service brokers are the costliest brokers in the stock market. They charge high commission rates. However, using a full-service broker is much to the advantage of a novice investor who doesn’t know the market very well.
Discount brokers are another type of brokers. These charge lower commissions, but they do not provide as many services. They would not provide any analysis of the market, and would not give any additional advice about the investment. Such brokers are good for hardcore investors who are very familiar with market rules.
Some investors like to play it safer and use both types of investors. The investor can use more than one broker if he/she so wishes.
Online brokerage could be the least expensive kinds of brokerage in the market. Full service and discount brokers generally have their own websites through which they provide their services online. While operative online, the broker would provide much lower rates than physical services.
Trading in stock requires the investor to first open an account. This account must be accessible to the broker. The limit of investment for the account would be set by the broker, but it is usually between $500 and $1,000. There would be some additional fees involved, and this has to be understood in advance by the investors. Brokers also charge an annual maintenance fees and there are penalty charges if the account balance falls below the minimum.
Brokerage accounts are of two types – cash accounts and margin accounts. Cash accounts are those which do not provide any credit. When buying, the investor must pay the full amount of the stock price. A margin account allows credit in the form of margins. The investor can buy on margin, while the brokerage will include some of the cost of the stock. Margin depends from broker to broker, but it needs to be protected by the value of the client’s portfolio. In case the value falls below the predetermined limit, then the investor would need to add more funds into it or to sell some of the stock. Thus, investors can buy more stock with margin accounts with less cash. This helps them to gain more and even lose more, if the situation so arises. Margin accounts thus carry more risks than cash accounts. They are not recommended for amateur traders.
It is important that the investor consider what he/she wants before zeroing in on some broker. The decision should depend on whether he/she only needs to buy stock or needs to get tips and advice on market trends also. If all this is required, then he/she would need to go to a full service broker. If the investor is very well aware of the way the market functions, then a discount broker would do.
Once the type of the broker is decided, the investor must check out the market for the competition. There could be differences in annual fees and the brokerage rates. This would depend on how much trade you plan to make in a year, how much cash you deposit in your account, whether you will use margin accounts and what services you will need. This will help to calculate the actual costs of the brokers.