Thoughts on selecting a stock broker

You need to have an account at a stockbroker (broker) in order to buy or sell stock. The two prominent exchanges, NYSE and NASDAQ, are like private clubs whose members only buy and sell to each other. The members of these clubs will buy and sell your stocks for you.

You can get a list of stockbrokers on the web by going to You will need to be a registered book owner to access this page but you can register easily and for free by following the instructions on the site.

You can set up an account at a broker fairly simply. Each broker will probably ask you some personal information that includes your social security number and contact information. They will also probably ask you to make a deposit into your new account for a minimum amount. Once that deposit check or transfer has cleared, you are ready to go.

Stockbrokers charge commissions or fees for transactions. These costs affect your earnings and losses. The costs are usually based on four factors: the actual transaction charge (usually a charge to buy or sell), the number of negotiated stocks, the cost of stocks you are buying/selling, and the total amount of the order.

Full-service brokerage firms usually charge the highest fees and commissions. Regional brokerage firms tend to be slightly cheaper than the national firms. Discount brokerage firms or online firms offer reduced commissions and reduced or no fees.

Paying $50 in fees to a full-service broker instead of $7 at a deep discounter can make a significant difference in your total return. If the stock price is $30 in a 100 stock transaction, you pay 1.6% of the stock price ($50 divided by $3000) to a full-service broker to purchase the stock. You will pay the same amount when you sell the stock for a total of 3.2%. A discount broker will charge you 0.4% for the round trip transaction. This means that the stock would have to appreciate to $31 just to make money with a full-service broker. The discount broker only needs the share price to increase 12 cents to break even on the trade.

Full-service brokers become acquainted with your financial situation. They may provide opinions on stocks / bonds, or offer financial research service. In many cases, a personal relationship is developed with a full-service broker. The full-service brokerage firms may offer a diversified range of financial services including estate planning, exclusive investment choices, and tax preparation assistance. In some cases, a full-service broker can offer their best clients IPO or special situation investment options.

Discount brokerage firms offer reduced commissions and, in some cases, reduced services. Brokers in a discount brokerage firm make trades for clients but may not provide the same personal service as a full-service broker. In fact, at a discount broker, personal brokers may not be specifically assigned to an investor.

The electronic trading or on-line brokers allow you to perform your trades using a computer. The on-line costs can vary from $5 to $40 for each sell or buy. Research information on companies is usually very accessible through these online services.

The goal of my book, The Confident Investor, is to teach you how to be confident in your trades. You will learn how to evaluate companies. You will also learn how to decide the right time to buy or sell shares. With this personal knowledge, there is little reason to have a relationship with a full-service broker. Instead, I suggest that you open an account at an online discount broker and save the fees and commission charges.

You can purchase my book wherever books are sold such as Amazon, Barnes and Noble, and Books A Million. It is available in e-book formats for Nook, Kindle, and iPad.

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