Stocks: How to open a Brokerage
account
The most common method to buy stocks is to use a brokerage. It used to
be that only the wealthy could afford a broker since only expensive,
full-service brokers were available. Charles Schwab changed all that by opening
the first discount brokerage firm and with the internet came the rise of deep
discount online brokers such as Ameritrade. Because of them nearly anybody can
now afford to invest in the market.
Full-service brokerage firm -
Full-service brokerage firms usually offer their clients a range of
services in addition to executing their buy and sell orders. For
example, the firm may provide investment advice, help in developing a
financial plan, or strategies for meeting financial goals. Firms usually
have access to full-time research departments and investment analysts,
who provide information the firm shares with clients.
However, in exchange for providing these
services, these firms tend to charge higher commissions and fees than
discount brokerage firms or firms that operate exclusively online.
However, some full-service firms offer online services and reduce their
fees for transactions handled though a client's online account.
Furthermore, full-service brokers are compensated based on how much you
trade, not the performance of your portfolio. This can lead to your
full-service broker advising you to trade when you don't need to (called
churning when excessive). The full-service category brokers includes:
Merrill Lynch, Salomon Smith Barney, Morgan Stanley Dean Witter and
others.
Discount brokerage firm - Discount brokerage firms charge lower
commissions than full-service brokerage firms when they execute
investors' buy and sell orders but may provide fewer services to their
clients. For example, they may not offer investment advice or maintain
independent research departments.
However, because of the extensive information and online account access
that's available on most brokerage websites, the traditional differences
between full-service and discount firms are less apparent to the average
investor. The best-known discount brokers are Charles Schwab, and TD
Waterhouse. Fees are kept low because discount brokers offer fewer
products but most offer no-load mutual funds without transaction fees.
Brokers are paid on salary and not on commission.
Deep Discount Brokers or Online
Brokers - A third category of brokerage called online brokers who
offered steep discount on commissions with online trading systems.
Ameritrade and E*Trade are a good example of that.. Today, hardly a
discount broker exists that doesn't offer online trading. Some online
brokers such as Scottrade and E*Trade have local branch offices and are
providing access to quality research. Full service brokers are on the
other hand are starting to offer online trading options.
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What does a
Broker do?
Brokers are the people who handle
customer orders to buy and sell securities. In the same way that
real estate broker act as a middleman between buyer and seller of
a house, a stock broker acts as a middleman between the securities
that trade on the market and the investors that buy them.
To be a stockbroker in the United
States, you must pass two licensing examinations from the NASD:
the Series 7 and the Series 63. These exams prove that a broker
knows about what he/she is selling to you as well as all the
regulations and laws in the securities industry.
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Every brokerage has different terms and conditions for opening an
account. There is a wide range of minimum deposits, varying anywhere
from $500 to $2500. Make sure you read the fine print beforehand. There
is nothing more irritating that spending the time to fill out
application forms only to find out you don't have enough money to open
an account. More and more online brokerages don't require a minimum
deposit at all. One such example of this is
sharebuilder.com, there are no
minimums to open an account and costs can be as little as several
dollars a month. Another option for those without a large bank account
is through Dividend Reinvestment Plans (DRIPs). They allow you to
circumvent brokers through buying stock directly from the companies.
Next-->>
Different types of accounts
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