Quick Start Guide to Stock Brokers
Traders and investors have been using stock brokers to buy and sell shares of companies since Roman times, but brokerage really took off with the increase in global trade in the 1600s. Since then, the entire stock brokerage profession has undergone significant modernization, culminating most recently in complex stock brokerage platforms and robo-advisory services that have just about replaced human stock brokers in most important respects. If you are considering investing in the stock market, you need to understand what stock brokers are and how to work with them. To help you, we’ve put together this quick start guide to outline the basics and point you in the right direction when it comes to choosing a broker for yourself.
What do stock brokers do?
Traditionally, stock brokers were advisors who informed you about different stocks available on the market, and who could buy and sell those stocks for you on the relevant stock exchange (earning a commission on the trade when they did so). Nowadays, those individuals do still exist but, more often than not, individual retail traders use online brokerage platforms that, in essence, take over much of the normal work of a human stock broker. Brokerage platforms allow traders access to the markets so they can buy and sell stocks at the click of a button.
If preferred, though, you can still go to a human stock broker, who will act as a financial representative or advisor in looking through thousands of different companies and choosing those that he or she thinks will give you the best returns for your investment over a specified period of time. That said, many people elect to use online platforms because they give traders access to information and tools that help them to make trading decisions for themselves and the costs are typically much lower than having a human do that for you.
How much do stock brokers charge?
A stock broker – whether human or a platform – usually charges commission fees when buying or selling shares. The amount charged depends on the type of brokerage firm and whether it is an independent broker, a discount broker, or a full-service broker.
The cost of trading stocks can vary greatly depending on how you trade them. For example, if you buy a stock through your own account at a discount brokerage firm, you may pay less than if you bought the same stock through your employer’s retirement plan. Likewise, some platforms claim to charge no commissions at all. These platforms are not executing trades for you for free, however. Instead, they make their money by adjusting the buying and selling prices to create what’s known as a ‘spread’. In matching buyers and sellers, brokers can take a percentage of the spread as their commission yet still not charge any ‘overt’ fees for the service.
Is it worth paying a stock broker?
Whether or not it is worth paying a stockbroker usually comes down to personal choice. If you need broad financial guidance and you are not sure where to start when it comes to investing, it is sensible to at least try to work with a stock broker or financial advisor who can share their insights and ideas relating to worthwhile investments. You may just find that in addition to the information they can give you about stocks, they can also help you to structure your portfolio and manage risk according to the risk profile that you want to tolerate in your investments.
Fees for this type of service vary, with some advisors getting paid by the hour and others simply receiving a commission on any products or investments that you end up buying or selling. Some of the most experienced stock brokers can charge hundreds of dollars per hour for advice, but it is much more common to find brokers that operate solely on commissions. There really is no blueprint to which type is best; everything depends on your personal financial situation.
If you are more confident in researching and learning about different financial instruments and trading techniques, however, it may be worthwhile trying a brokerage platform with built-in research and analysis tools before you spend your time and money finding a human stock broker. Most online brokerage platforms have extensive charting tools where you can look at the price history of certain assets and decide whether you want to trade them, and, critically, when you want to trade them. You can also read up on the latest company news and earnings reports to conduct what is called fundamental analysis on a stock. This is the type of research that a stock broker would do for you anyway, so if you feel confident doing it yourself, it is not really worth paying someone to do it for you unless you otherwise think that the time savings and level of confidence you would get from an expert are worth the additional costs.
What to look for in a stock broker
If you are planning to consult with a human stock broker, much of the decision about whether to work with them will come down to your first impressions and how well they communicate their advice to you in any initial meetings. You can search online for reviews about advisors in your area, but because everybody’s style varies so much, it might just be worth arranging an in-person or video consultation with them to outline your goals and make sure that they are the right person for the job.
Comparing online brokerage accounts is a little more complicated. There are numerous factors that come into play depending on the type of support that you will need in making your trading decisions. Some platforms are also suited better to traders that stick to certain types of trading. For example, if you are a day trader, your focus will be on charting tools and price action, and thus your needs will be different to someone that is a swing trader or value investor, as the latter will be working on longer time frames and may need to incorporate more fundamentals.
Here are some of the key factors to consider when choosing a brokerage platform:
- Education: Does the platform provide you with resources and tools that will help you to learn more about the stock market? If it does not, you may be limiting your growth as a trader.
- Fees: Make sure that you understand exactly what you will pay on each transaction when you sign up for a brokerage account. Numerous fees apply to trading stocks, and many of them can appear hidden when you first sign up and losses can mount easily down the line if you’re not taking these into consideration.
- Tools and charts: Ideally, you will be able to do all of your research and trading from a single platform. Nothing is more frustrating than having to flip between tabs in your browser when you are trying to execute a trade quickly at a fast-moving price level. Many platforms nowadays offer comprehensive tools in the trading app itself, and these are definitely preferred over platforms that literally just execute the trade for you.
- User reviews: There are ample ways to check reviews of brokerage platforms online, and you should definitely do this before you deposit your hard earned money into one. Look especially for reviews from traders of your experience level, and see if the issues that they are highlighting might be prohibitive to your success as a trader there, too.
Which stock broker is best for beginners?
As soon as you start researching different brokerage platforms online, you will no doubt find that you will be bombarded with ads from different providers offering you bonuses and other incentives to join them. Be careful with these offers, however, as often those incentives come at a cost later down the line once you are an active trader on the platform. Instead, go with a platform that has good reviews from traders with your experience level and that has a good reputation as a general all-round platform. The below platforms are recommended for traders that are just getting started and each have their own particular strengths for why this is so:
- Fidelity: this platform is renowned for its excellent research, analysis, and education features
- Robinhood: known primarily for its ease of use and commission-free trading, this mobile app brokerage platform is a great way to get started without getting bogged down in too much analytical detail
- E*TRADE: a long-standing favourite among traders of most asset classes, this web-based platform is often rated among the top in its categories
- TD Ameritrade: beginners benefit from having access to a variety of tools that can teach them about the various aspects of stock analysis and trading, and for this reason, this platform stands out as the best for the average beginner Trader
Where to find out more about stock brokers
Whether you are just starting out or you have been trading for a while, it is important to understand the role of stock brokers and learn how to select the right brokerage for your particular trading approach. If you need help identifying which service or platform is best for you, make sure to do extensive research and then connect with like-minded traders to hear about their experiences with various individual brokers or platforms. You can find other traders to help you on Traderverse. For more information, sign up at Traderverse.io or join us on our Discord or Telegram group.