Types of Stock Brokers

Stock brokers handle most of the buying and selling activities on the stock market. An average investor will hire the services of a broker to handle his trades. A broad range of brokerage services is available nowadays. Full-service brokers can give advice about which stocks to buy or which stocks to sell. They often have full research facilities that they use to analyze market trends and to predict market movements.

The services provided by full-service brokers do not come in cheap since they charge the highest commission rates in the industry. Hiring a full-service broker is optional and it depends on the number of trades level of confidence, and the knowledge of stock markets of the investors.

Some investors, with the hopes of saving on commission fees, hire discount brokers instead. Although these types of brokers ask for much lower commissions, they don’t offer advice or analysis like full-service brokers. Discount brokers are ideal for those investors who like to make their own trading decisions. Some investors use both types of brokers for strategic purposes.

Some brokers offer better rates by operating exclusively online. There are even some full-service and discount brokers who offer discounts for orders which are placed online. Online brokerage is considered to be the least expensive way of trading stocks.

Investors need to open an account. Every broker sets his own requirements for the maintenance of an account balance. This is usually between $500 to $1000. Before choosing a broker, investors have to look at the fine print first in order to know more about he involved fees because some brokers charge annual maintenance fees. There are even some brokers who charge fees every time the account balance falls below the minimum.

There are two basic types of brokerage accounts: a cash account and a margin account. In a cash account, an investor has to pay the full amount of the stock price that he wants to buy. In a margin account, however, an investor is given the chance to buy the stock “on margin” which means that the brokerage will carry some of the cost of the stock. The amount of the margin, which varies from broker to broker, has to be protected by the value of the client’s portfolio. Adding more funds or selling some stocks are the only two options of the investor in case his portfolio falls below the specified amount. The investors, through the margin accounts, are allowed to buy more stocks with less cash thereby realizing greater gains and losses. Inexperienced traders are not recommended to opt for margin accounts since they are a lot riskier than cash accounts.

Choosing a particular broker has to be based on the specific needs of the investor. If an investor wishes to receive advice about which stocks to buy or to sell and yet he is uncomfortable with making trades on the Internet, then he is suggested to hire a full-service broker. On the other hand, technology savvy investors with enough confidence and knowledge to make their own trading decisions are better off with discount brokers.

After deciding on which type of broker to hire, investors are advised to compare a few competitors in order to find out the significant differences in the costs. When choosing a broker, investors also have to consider the number of trades to be made, the amount of cash to be deposited, the type of margin accounts to be used, or the kind of services to be rendered.

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