Editor's note: This is a special excerpt from TheStreet.com Ratings' Ultimate Guided Tour of Stock Investing. Other Beginner's Guides cover stock basics , market indices , diversification , financial goals , risk tolerance and growth and income stocks .

A stock exchange is like a supermarket, but instead of buying groceries, you buy stock. To continue the analogy: The supermarket you go to depends on the stock you're buying. And, just like a supermarket, you get to pick what you want from any of the shelves, but you've got to check out at the register. The attendant at the checkout counter (called a broker in the world of stock investing) rings up your purchase, which also includes some money to pay his or her commission .

It would be very impractical if every investor who wanted to buy or sell stock had to travel to the exchanges to trade stock. Besides, you can't. You have to be licensed to buy or sell stock on the exchange. That's where brokers come in.

By definition, brokers are people who bring buyers and sellers together. There are all kinds of brokers: insurance brokers, mortgage brokers, real estate brokers, concert ticket brokers, and many more. We're just talking about stock brokers.

Brokers must register with the NASD (National Association of Securities Dealers, renamed the Financial Industry Regulatory Authority, or FINRA) in order to do business. A broker acts on your behalf, as the buyer, to find another broker who's working on someone else's behalf, as the seller. It's this broker's job to bring the two together.

So if you're looking to buy stock, you would place your order through a broker at either a full-service, discount, or online brokerage firm.

How does the broker on the floor of an exchange know what you want to buy or sell?

Good question! He or she gets an order on the computer screen from your broker in the office. This order tells the broker on the floor which stock you'd like him to buy or sell on your behalf. You can also park yourself at your computer and place your order online with a broker.

Selecting the right broker is as important as selecting the right stock investment.

There are two key questions you have to answer for yourself before you choose a broker:

How much customer service do I want?

How much am I willing to pay in fees?

Keep these questions in mind as you read about the three types of brokers available:

1. Full-service Broker Offering Investment Advice or Portfolio Management

This broker offers a full range of trading services and financial advice and charges you a commission. As the name says, it's full service -- for a price. The broker makes money based not on how well your portfolio does, but on how often you trade. Most, but not all, of the brokers in this category provide specific recommendations on buying or selling stock. However, some brokers, especially those affiliated with banks, may also offer financial consulting regarding your portfolio and sector allocation.

2. Discount Broker Offering Low Commission Rates and Limited Services

This broker will execute your trades at a discounted commission rate, but offers no guidance in selecting stock. Some full-service brokers may also be listed as discount brokers because they offer a commission discount on any trades that you initiate.

3. Online Broker Offering Internet-based Trades and Research

This broker offers discounted trading via its Web site. Online brokers typically cater to the "do-it-yourself" crowd by offering research tools but no advice or even contact with an actual broker.

How do you decide whether to deal with a broker from a full-service or discount brokerage firm? Arm yourself with as much information as possible.

Consider the advantages and disadvantages.

Advantages of Full-Service Firms

  • "One-stop shopping": You can more readily trade other instruments, in addition to stocks, as you become more experienced and potentially want to venture into more sophisticated investments.
  • More service: Typically, but not always, a full-service broker will know more about your personal situation and be able to help you with your investment choices.
  • Disadvantages of Full-Service Firms

  • Higher commissions: The standard commissions charged by full-service brokerage firms can be significantly higher than those charged by discount firms.
  • Stricter requirements: Many full-service firms are stricter, requiring a high net worth for riskier investments in things like options and futures. For most beginning investors, this is not an issue.
  • Advantages of Discount and Online Brokerage Firms

  • Discount commissions: Standard commissions are lower across the board. You may sometimes be able to negotiate still lower commission rates.
  • More flexible requirements: The net worth requirements for opening an account are usually less strict than they are at full-service brokerage firms. Again, this is typically for riskier investing and not generally an issue for the beginning investor who's only buying and selling common stocks.
  • Disadvantage of Discount and Online Brokerage Firms

  • Less service: Some investors see discount brokers as "order takers" who don't give you the time and service you need. This is true up to a point, but it's changing. To keep up with competition, many discount brokers are becoming more service oriented.
  • Don't Get Stranded in the Jungle -- Check Your Broker's Record

    A beginning investor logically thinks that finding a good stock is top priority. But finding the right broker is critical, too. Don't get caught short -- check your broker's record before you start doing business.

    How do you do that? We offer a few wise tips.

    Investigate the Broker's and the Firm's Integrity

    Go to the FINRA BrokerCheck at brokercheck.finra.org . From there, read through and agree to the Terms and Conditions. You can then search on either an individual broker or a firm to receive a report listing any private or regulatory actions against them. If a "maybe" appears under "Disclosure Events" on the left hand side then click on "Deliver Report" on the top of the screen to request a copy by email.

    While it isn't unusual for a broker to switch firms a few times in a career, frequent job hopping can be a sign of trouble.
    Be On The Lookout: SIPC Members
    Is the firm a member of the Securities Investor Protection Corporation (SIPC)? Almost all brokers are SIPC members. SIPC provides limited customer protection if a brokerage firm runs out of money. However, SIPC does not insure against losses if your stock declines in value. Also contact the Securities and Exchange Commission (www.sec.gov), which monitors the industry, to file a complaint.

    If the broker has been involved in securities arbitrations, find links to state securities regulators by visiting www.nasaa.org , the site of the North American Securities Administrators Association. State regulators can send you Central Registration Depository (CRD) reports, which offer a more detailed disciplinary record than those NASD provides. Call the phone number listed at your state regulators' Web site to request a broker's CRD report. Unfortunately, states don't offer this information online. The report may take weeks to arrive, but it's usually worth waiting for. It often lists complaints that don't appear on the FINRA Web site.

    Shop Around for the Best Commissions

    Commission costs can have a dramatic impact on an investment's performance. Most investors often ignore or underestimate how much of an impact broker commissions can have on their final results. Avoid disaster simply by using a broker who charges you the average commission rate.

    To give you a head start in selecting one that suits your needs, we've put together the Broker Comparison Checklist (below). Although commissions alone shouldn't be the only factor that you consider when selecting a firm, these costs certainly can be a very critical factor if you trade actively.

    Make sure the broker trades the same types of securities you want to trade. For example, you may want to trade preferred stock, which not all brokerage firms trade.

    Interview Your Broker

    Read the " 10 Questions to Ask Your Broker ." These questions are businesslike and to the point. If you feel uncomfortable, print them out and send them to your broker in advance of meeting face to face.

    Also, make sure your personality matches the broker's personality. Are you comfortable with the broker's style? Is he or she easy to reach? Is he or she knowledgeable and able to explain concepts clearly? Does the firm have a responsive customer service department so you can easily get answers to important questions and concerns?

    Most important of all: Remember that the broker works for you. You are paying him or her through your trading commission. Therefore, he or she must satisfy your needs and requests. Do not be intimidated by your broker. If you feel uncomfortable or intimidated, change to another broker right away.

    Be On The Lookout: Broker Check-Up
    After selecting a broker, keep close tabs on what he or she is doing. Follow up within a day or two after making a trade to make sure your broker carried out your instructions properly. Also, check your monthly account statements carefully to make sure the transactions accurately reflect your orders. If there's an error, follow up immediately, first with your broker and then with the branch manager. If you get no satisfaction, go to the firm's compliance department. If the problem is still unresolved, file a formal complaint with the firm, the SEC, FINRA, and the stock exchanges to which the firm belongs.
    Broker Comparison Checklist
    Broker #1 Broker #2 Broker #3
    Name
    Types of Services Offered:
    Full-Service Brokerage
    Discount Brokerage
    Online Brokerage
    Money Mgmnt./Fee-Based Accts.
    Mutual Fund Trading
    Annuities
    IRA Retirement Planning
    Other (like options trading)
    Commission/Fee Information:
    100 shares @ $10 per share:
    Full-Service Trade $_______________ $_______________ $_______________
    Discount Trade $_______________ $_______________ $_______________
    Online Trade $_______________ $_______________ $_______________
    100 shares @ $100 per share:
    Full-Service Trade $_______________ $_______________ $_______________
    Discount Trade $_______________ $_______________ $_______________
    Online Trade $_______________ $_______________ $_______________
    1,000 shares @ $20 per share:
    Full-Service Trade $_______________ $_______________ $_______________
    Discount Trade $_______________ $_______________ $_______________
    Online Trade $_______________ $_______________ $_______________
    Additional Fees:
    Inactivity Fee $_______________ $_______________ $_______________
    Account Minimum Fee $_______________ $_______________ $_______________
    Other fees $_______________ $_______________ $_______________
    Initial Minimum Investment $_______________
    Licensed to Operate in My State Yes ____ No ____ Yes ____ No ____ Yes ____ No ____
    This article was written by a staff member of TheStreet.com Ratings.