Services: Stocks and Beyond
The services brokers provide to their clients can vary quite a bit from firm to firm; chief among them is the ability to buy and sell stocks. When novice investors think about investing, buying and selling stocks is usually what comes to mind, but there are other securities (a.k.a. investments) that might be of interest down the road.
Other investment products, like mutual funds, bonds, options, and CDs can also be purchased through your broker. While these types of investments might not be something you're interested in right off the bat, the way they are handled by your broker should be something that you consider when you're looking into opening a brokerage account.
Of special interest are mutual funds. Many larger brokers have their own mutual fund offerings or special relationships with firms that do, and you can bet that they're going to push those funds a lot harder than they will the competition's funds. If you're considering putting some money in mutual funds, check to see how many mutual funds your broker offers with no transaction fees. However, don't let these fees be a deal-breaker; with the rise of exchange-traded funds, the mutual fund arena is changing.
Platform: Your Trading Dashboard
If you decide to open an account with an online discount broker, a big factor to consider is the trading platform you'll use to access your account. In the past several years, firms that offer online trading have been working to redesign their trading platforms in a way that makes information more readily available to their clients. These days, most well known firms have very impressive trading platforms that provide investors with account information, research, and, of course, the ability to buy and sell investments. If you head over to the Web site of a broker you're looking at, you can find a breakdown of what's offered in the trading platform.
Must Read: Talking to Management
Additionally, many brokers offer more advanced platforms that appeal to investors who have high volumes of trades (like day traders). While these premium platforms may offer more features, they typically come at an additional cost to you, the client. When it comes down to it, if you're not going to use the additional features (and most won't), don't bother with them.
Fees: Investor Beware
There are five major types of fees associated with having a brokerage account:
1. Trading Fees.
You're pretty much guaranteed to incur these. Your broker will charge you a fee for every trade you make. This is usually under $10 per trade with an online discount broker.
2. Broker-Assisted Orders.
If want to have your broker make trades for you, then you will usually need to pay for that extra face (or phone) time -- substantially more than you would for a regular self-directed trade.
3. Account Maintenance.
Some brokers charge monthly maintenance fees or inactivity fees when their clients don't meet certain conditions. Become familiar with your broker's policies on this.
The interest on the money you borrow from your broker can be pretty hefty in some cases. Usually, low trading and maintenance fees are offset by higher margin interest rates.
5. Withdrawal or Transfer Fees.
Some brokers will charge you for taking money out of your account. Make sure that you understand the limitations placed on your ability to touch your own cash.
Remember, not all of these fees will apply to you, so before you select a broker, make sure you're not paying for services that you won't find yourself using.