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| | | In order to buy and sell stocks, you need a broker; the public does not have direct access to the stock exchange. | | |
| Typical costs: | - Fees for a single stock transaction can range from $7-$20 with a discount brokerage up to $400-$700 for a full-service firm, according to an article in Optemetric Management magazine.
- Unless there is a minimum amount of money invested or a certain number of transactions each year, some brokerage firms charge annual account maintenance fees of $25-$200. For a small investor sitting on $2,000 worth of stocks with few or no trades each year, paying $160 represents 8 percent of that nest egg, according to The Motley Fool. If you have limited funds to invest, look for firms with no minimum requirements and no maintenance fee. Newsday.com gives an overview.
- ThinkQuest.org gives an extremely clear example of how to calculate stock commissions and profits.
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| What should be included: | - Full-service brokers usually offer a wider variety of financial products (stocks, bonds, annuities, insurance), provide investment advice and research, and charge higher fees. For less-knowledgeable investors, a full-service broker is similar to a personal shopping assistant. But they are paid on a commission basis, which means their income is based not on how well your portfolio does but on how often you buy or sell. They will often solicit business, suggesting specific transactions.
- Discount brokers concentrate on fewer products than full-service brokers, carry out transactions with no frills, generally do not offer any advice or research, often provide online computer trading orders, and charge lower fees. They don't solicit and usually are paid a salary rather than commissions. A discount brokerage house makes money on a high volume of trading fees. Customers save a great deal of money by doing their own research and making their own decisions. The Investment FAQ gives an overview of discount brokers.
- Reliability and speed are crucial, and it can cost money if a trade is delayed. Ask how and when your orders will be processed, and if there are options if a website is down. AccuInvest.com gives a general overview, and compares direct access and online brokers.
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| Shopping for a stock broker: | - Decide how much money you want to invest; determine if you're interested in stocks, mutual funds, options, bonds or CDs; research to see which brokers offer the product(s) you want; and then carefully compare fees and services, including trading commissions, account maintenance fees, IRS custodial fees and other costs. The Missouri Securities Division provides a guide for beginning investors.
- MSNBC.com gives a quick overview of picking a full-service broker. Check with the securities regulator in your state to be sure a broker is properly registered and if there have been complaints.
- Biz.Yahoo.com gives a numbered outline for choosing an online broker.
- The Motley Fool provides a broker comparison chart for TD Ameritrade, ShareBuilder, Power E*Trade and Fidelity, with links to these four major brokerages.
- ConsumerSearch.com lists the best reviews of online brokers, including comparison charts and links.
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Article updated November 2006 |
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