Traders new to options, stocks, and/or futures have a very important task they must initially complete: choosing the right broker, who can save you money and frustration. If the wrong one is selected, it could cost you a lot of money, as well as being highly frustrating. In this piece we will discuss some general guidelines as you go through the online stock trading service selection process.
You need to first beware of commissions. If an online broker is offering you a commission rate of $100 or more, then you need to look elsewhere. The reason for this is that your profitable trades get slimmed down and your losses on losing trades are magnified due to the high commission rate. A range of $20 to $35 for full service is reasonable. Discount brokerage fees would be even less than that. A discount online broker, in general, should charge less than $10 per trade. Keep in mind as your trading volume increases, your commission rate should take that into consideration.
Timing is everything in today's volatile market. A quality online broker should offer a trading platform that provides streaming, real time price updates for both stocks and option chains. Customers should have the ability to get the most up-to-the-moment data for Bid, Ask and Volume, giving them the ability to make real-time trade decisions and stay on the cutting edge of the market. Essentially the online platform should provide comparable stock data information muck like offered by the stock software packages we have reviewed and evaluated.
It is also important to ascertain just how much money you need to open your trading account. Each online stock broker has a minimum opening balance requirement. Some are as low as $500, most are around $1,000, and several are higher. The general rule of thumb is you should have at least $1,000 when you go to open an account. You can always add more money as you choose to. Successful stock trading is a process. The key is to take it one step at a time, and the first step is to trade small and gain experience.
Be careful though; some brokerage firms may have a low opening balance but will charge you a maintenance fee if your balance falls below a certain amount. Although the fee may be as little as five to fifteen dollars per quarter, it can significantly eat up your investment returns if you are just starting out (e.g., $50 per year in fees on $1,000 account balance is equal to 5 percent interest.)
Determine how many stocks and mutual funds the online stock brokerage firm has access to. You want to ensure that your online stock broker can help you invest in any of the stocks and mutual funds you are interested in. It doesn't do you much good to have your money in the account of a discount online stock broker who doesn't have access to buy the particular mutual fund you want. You can read online broker reviews or look at the list of available stocks traded by the discount online broker you are interested in to ensure that they have the stocks you want.
Find out what types of accounts your online stock broker offers. If you want to open an IRA, Roth IRA, SEP or Keogh, you will need to ensure that the online stock broker makes that option available to you. No online stock broker offers the exact same set of tools, research, and perks to their customers.
For instance, some will allow you to instantly log in to your account via the Internet and print out an analysis of your portfolio, view the balance of your account for the past six months, check your realized and unrealized gains and view dividend payments for the past few years. Other online stock brokers may be light on these types of features, but offer tremendous research capabilities you can't get elsewhere.
Lately, a lot of brokerages have begun offering Visa Check Cards which work exactly like a credit card. The difference is, the money you spend is taken directly out of your brokerage account. This way, you have the combined functionality of a checking / savings / money market account with a stocks / bonds investment account. It is tremendously convenient and can help simplify your finances. If you are looking for an all-in-one solution, this may be a more attractive alternative.
Before you open an account, visit the web page of each of the online stock brokerage firms you are considering. If you plan on doing a lot of your research or trading online, the feel of the site is going to be almost as important as the other benefits and services offered.
Use these guidelines when going about the task of choosing the right online stock broker. By doing this type of homework you have a much better chance of acquiring the online stock brokerage firm that will best meet your needs.
For more information on how you can monitor, track and manage your stocks, be sure to check out our top-rated stock software applications.
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