Online Stock Trading Brokers

Online Stock Trading - Choosing an Online Stock Broker

Buying Stocks Online

If you are interested in buying stocks online you will need to sign up with an online broker. There are basically two types of online stock broker you can sign up with - the so-called Full Service Broker or the Discount Broker.

What is the difference between a Full-Service Broker and a Discount Broker?

Full-Service Broker

Full-service stock brokers provide a range of services and most importantly advice. They can advise you on such things as stock picks, retirement planning and taxation. They also offer a wide selection of products for investment, such as insurance or derivatives, plus they will provide access to their research.

Goldman Sachs is the leading full-service broker at the moment and they say of themselves that they are "a world class provider of wealth management solutions for high-net-worth individuals, their families and foundations". There does not appear to be any mention of cost on their website but you can expect commissions in the $150 dollar range plus no doubt other fees, but high net worth individuals are probably not too worried about such minor inconveniences. They just need the best advice money can buy.

One problem with full-service brokers is that their compensation is often based on how much you trade, not on how well your investments do. This can lead to unscrupulous full-service stock brokers advising you to sell or buy stocks when you don't need to. They have a term for this of course, it is called 'churning'. So if you are using such a brokerage service, then take care they are not using you to fund their extravagant lifestyles.

Discount Brokers

Discount stock brokers do not provide advice. They just take your order, either over the phone or, increasingly, online and buy or sell whatever stock it is you want to trade, although if you have access to a system then you could of course use some form of system trading. Their commissions are generally low (a few dollars per trade) but they do sometimes charge 'inactivity fees' if you don't trade often enough, or other fees if you require a special service.

The best-known of the cheap online brokers is probably Charles Schwab. There is another cheap online broker known as TDWaterhouse, but based on my personal experience I can't recommend them and I even hesitate to mention them here, except as a warning.

Fees are kept relatively low by discount brokers because they offer fewer products and no advice. These brokers are paid on salary not commission, so they are not concerned by getting you to trade stocks unnecessarily, but bear in mind the above-mentioned inactivity fee.

If you are looking to buy stocks online, and if you are not a high net worth individual then the discount broker is probably what you are looking for.

For a list of online brokers see online brokers

See here for an account of problems with TDWaterhouse

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