In order to beautify your house, you need the assistance of an architect, carpenter, interior decorator, electrician etc. Similarly depending upon the type of investing you plan to do, you may need to hire a broker to handle your investments for you. A broker’s function is to arrange contracts for property in which he or she has no personal interest, possession, or concern.
A broker is a real estate person who is licensed by the state to practice real estate. The broker generally earns a portion of the commission on the sale and is employed by the seller unless you arrange to hire a “buyer’s broker” to whom you pay a commission. If you want to trade in stocks, you have to open an account with a stock broker. While you are investing your money, the stockbrokers are executing your orders.
There are two main categories of brokers: Full-service brokers and Discount brokers.
A full-service broker provides step-by-step guidance to the customer. He will advice you on the purchase of shares, plan your financials, analyze your investment and provide full customer support. Because of these services full-service brokers charge more than discount brokers.
A discount broker, on the other hand, shall not advice you on the investment trends or provides you with detailed market research. He will carry out transactions according to your specifications. Discount brokers charge lower fees but you lose out on customer support. Before you settle on a broker it is recommended that you survey different companies for their brokerage and decide which one is best for you.
Criteria for choosing the right broker
- Choosing the brokerage charges: You should compare the charges of the various brokers on the number of trade types rather than just one trade type. There are hidden charges, which you come to know only when they are debited into your account.
- Trading technology used by the brokers: Superior trading technology is not only needed for fast execution of trade orders, it is also required for the manipulation of the stock market research tools. You need tools to analyze the stock prices on technical and fundamental levels through the study of charts, graphs, and allied information material.
- Minimum loading time and High server Uptime: It is often observed that due to excess demand on the system, some brokers have a slower load time than others. In fact, this can lead to the server becoming bogged down, and users not being able to get into their account. You want to make sure that the online broker you choose is going to keep the load times to a minimum so that you can complete your transactions when need be.
- Fast response time with Great customer support
You might wonder how to differentiate between a stock analyst and a broker. Stock analysts basically do a lot of research and make recommendations to help companies and clients make investment decisions. They read company financial statements, analyze commodity prices, sales, costs, expenses, and tax rates to determine a company’s value to help project its future earnings. Analysts usually study an entire industry, assessing the current trends in business practices, products, and industry competition.
Putting all this together, analysts write reports and make presentations citing their recommendations on whether or not to buy or sell a particular investment or security.
Stock brokers, on the other hand, are usually there to follow instructions to buy or sell stock, not necessarily to analyze them. Stock brokers perform three types of services: execution only, advisory dealing, and discretionary dealing. Execution – only, or discount brokers, just carries out the client’s instructions to buy or sell, nothing more. In Advisory dealing, the broker acts as an advisor and advises the client on which shares to buy and sell, but leaves the decision making up to the investor. In discretionary dealing, the stock broker knows the client’s investment objectives and then makes the decisions on that client’s behalf.
If you are a new investor, you should explore different avenues to find out the best possible option for yourself and for this you first need to ask yourself “What information should I gather from my discount broker?, What are the charges for buying or selling shares? How will the broker be available to me: over the net or telephone?” You should always enquire about perks offered to customers.
One should always go for the full-service broker during their initial stint at the stock market. This is due to benefits that can be availed using this service, esp. customer support and personal attention. They advice you on investment strategies which is largely dependent on their market research skills.
Another important consideration before you open a brokerage account is that of minimum opening balance and maintenance fees. The minimum opening balance required by some companies is quite high. Some brokerage firms also charge a maintenance fee if your balance falls below a specified amount.