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What Are Discount Brokers?

Submitted by Martin Martinez | RSS Feed | Add Comment | Bookmark Me! print

Discount brokers can be a great way for some consumers to get into and participate in the stock market or the bond market. However, discount brokers are not for everyone. There are severe limitations that come with working with discount brokers and consumers should understand what those limitations are before they sign on with one. This article explores some of the issues that you will face when working through discount brokers.

First, it should be understood that there are discount brokers and there are full service brokers. There is a difference between the two.

Discount brokers are a fine choice if you want to participate in the stock market but do not need any advice before making your stock picks. Discount brokers do not offer clients any investment advice and do not walk through the process of investing. For this reason, you have to know what you are doing or working with this type of broker can be a big mistake.

If you are comfortable doing your own research and making your own buying decisions, discount brokers will act in your behalf and buy or sell stocks and conduct option trades for you. In other words, you tell the discount broker what you want and they will execute the order for you.

For those who are not as comfortable making these decisions, or for those who simply do not have the time to research various companies on their own, full-service brokers will advice you on what to buy, when to sell, and how to divide your investment money.

While discount brokers will not advise you, they will charge you for their services. Discount brokers offer various fees, depending on many factors, but often it is based on the number of shares that you want to trade. One good aspect about this for consumers is that competition for your business is stiff in this industry and you can often find very good deals among the leading brokerage firms. When you are researching discount brokers, make sure you ask about additional fees that may be charged for things such as assets transfers, IRA fees, and banking transaction fees.

Before you sign up with a discount broker, ask some questions.

You will want to know if there is a minimum opening deposit required. You will also want to know if there are any accounting fees involved with your account or if that is a free service. You will want to know if there are any penalties for infrequent trading. In addition, you may want to know if they offer any research materials or tools for you to use. Many companies now offer online transaction pages that are secure, you may wish to know if the broker you are interested in working with offers this too, and if there is a charge for using the tools. Lastly, you always want to check the discount broker out before sending money. This can help stave off disappointment and help steer you away from less than reputable brokers.

You can find a lot of information on the various big name discount brokers online. This is a good place to start when thinking of opening an account.

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