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What You Need to Know about Stock Accounts and Stock Brokerage Firms:Guide to Stock Brokers and Brokerage Firms - Mired in one of the worst financial periods in history, it can be intimidating, not to mention, frightening, to invest. You are unsure what is safe - if anything is safe at all. You're wondering who to trust with your money and who will use it to pad corporate exec's pockets. You're wondering how to plan for your child's college education or your retirement. There is a lot of wondering and worrying involved with stock investing; there's also an avalanche of information explaining it all. You have access to the information that may clear up your stock investing questions, but it's equally possible that the waters will be muddier than ever. The stock market is a long-term investment vehicle, and you need a good guide now more than ever. Not investing is not the way to pay for your future; it is still important to plan for tomorrow. It's just important to do it wisely. This includes doing your homework about everything from stocks to bonds to brokers. If the recent economy has taught us anything, it is that we can't put our finances blindly in someone else's hands. This guide will answer some of your basic questions about brokerage companies, accounts, and services so you can take back that control.
*Deposit fees. Many brokerage firms have you place a deposit, anywhere from $500 to $2500, in order to open an account.
What Does a Stock Broker Do?:What does your stock broker do for all of these fees? This depends on the type of broker you go with. There are full-service and discount brokers, as well as the world of online brokerage firms.*The term stock broker brings to mind Morgan Stanley, Merrill Lynch, and other giants in the field. These are full-service brokers, who, in addition to executing the trades, offer advice, retirement planning, tax tips, research, and more investment products from which to choose, such as insurance or derivatives. This is great because you get professional advice, but be careful because your broker is paid per trade, not based on how that trade goes. So you could be consistently losing money while he's gaining it. *Discount brokerage firms are just the facilitators of the trade. They buy, they sell. They don't advise you or offer additional services. The trade-off is that their fees are much lower. You can find online brokerage firms that offer trades as low as $5. These brokers are not paid on commission. Big names include Schwab, TD Ameritrade, and E-Trade. Some of these brokerage firms, however, have begun to offer valuable research (on par with full-service brokers) to customers. Customers do not get the personal one-on-one broker, but they pay much lower commissions in exchange. What Type of Account Do You Want? - One more thing to consider before selecting a stock broker is deciding what type of account you want. There are three types:
*Cash. With this type of account, you usually pay a deposit into your account. When you make a buy, the broker takes the money from this account to cover the cost. When you sell, he will deposit the proceeds into your account. If you use a full-service broker, you will probably have three days to pay for purchases. Do not use your credit card to pay. No, don't do it. *Margin. With a margin account, you can borrow as much as half of the stock's value from your broker to make a buy. Why is this a good idea? If your stock doubles in value, for instance, the money in your account has multiplied. So say you paid in $5000 of your own money and borrowed $5000 from your broker. The stocks' value doubles to $20,000. Even after you repay the broker, you have more in your account than you would if you'd paid $10,000 of your own money. This can go south, though, if the value falls. A margin call is issued by your broker, which means that you either have to sell off the stock to pay off the loan or deposit cash into your account so there is more in there than the amount you borrowed. *Discretionary. And this is what we've learned in the past year: do not give someone control of your financial life. Discretionary accounts give the broker carte blanche to buy and sell as he chooses. It is strongly recommended that you do not do this; do not give up control like that. You have to have a say in what is going on in your portfolio. Advice, yes. Total control, forget it.
Best Brokerage Firms :If you want a full-service brokerage firm, there are big names that are still performing solidly. Time Magazine named Merrill Lynch as the best. Regardless of the firm you choose, make sure the broker listens to you, takes the time to explain things without being condescending, acknowledges commission fees and is transparent in his business practices, and makes solid, sensible suggestions based on your situation. Make sure he is accessible by phone or email when you need to ask a question or have a concern. Make sure he has the proper qualifications: they need to have passed the General Securities Registered Representatives Examination and obtained their stock broker's license. Depending on your state, he may have had to take the Uniform Securities Agents State Law Examination as well. Choosing an online or discount broker is equally important, and fortunately, there is a lot of information available to help you make a good decision. You can go with a reputable big company, like Charles Schwab, but always make sure to check their current ratings and reviews because we've also learned that the big boys sometimes are not as strong as we think. But Schwab is highly regarded and will be a solid choice. You can also check sites like Consumer Search for suggestions. They named Fidelity (overall trading), TradeKing (discount trading), and ThinkorSwim (for frequent trading) as the top three online brokerage firms. There are also other lists, notably those by JD Power, MSN Money, and SmartMoney that provide good lists of top picks. SmartMoney, for instance, published a list of the best/worst stock brokerage firms for 2009 (http://www.smartmoney.com/investing/economy/smartmoneys-annual-broker-survey-23119/). This is a great resource because it names different categories, such as Commissions, Trading Tools, and Research, and gives you the best and worst choices. This can be very helpful, but always make sure to get current information! We found a list of top online brokerages. At the top of the list were Citigroup, which is going through a very rough financial patch, and Bear Stearns. We know how that one turned out. It would be easy to miss the 2007 date written in small print at the corner, but you need to look for these things. You don't want to choose a "best" online brokerage firm that was great three years ago but is unreliable at best today. Some good online choices are TD Ameritrade, E-Trade, Schwab, TradeKing, and Fidelity. The onus is on you to do the research you need to choose the right brokerage firm, whether in person or online. Investing can be overwhelming; take one step at a time, do your homework, and choose a person or site you trust. But don't trust them completely with your money. It is yours. You are in control.
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