As individuals we need an online stock trading broker in order to buy or sell stocks, futures and options and that means setting up an account with an online stock broker.
Depending on the service you require that does not mean you have your own personal broker but that you set up the account and trade yourself.
Let’s look at the different types of account you can have and what to expect from them.
Full Service Brokers
Full service brokers work on a commission basis (a percentage of the trade value) and offer everything from market research to actual trade recommendations. You should be aware that they are remunerated by these commissions and it’s therefore in their interests that people trade on a regular basis which might not always be in your interest.
If you intend to make all your own stock trading decisions it’s unlikely you will need a full service broker.
Discount Brokers offer low cost transaction fees for those traders who wish to make their own trading decisions. They do not offer advice, although some issue weekly or monthly newsletter recommendations, and most don’t trade in futures, etc.
Direct Access Brokers
Direct Access Brokers allow you to trade directly on the electronic communications networks (ECNs) but you will require access to their software in some way and this will be charged at varying fee rates.
If you wish to trade in commodities you may have to open an account with a futures broker as most discount brokers do not trade in futures.
The services on offer at the different types of broker may differ so you need to be aware of what you should be looking for.
Not all brokers support all types of order. Some discount brokers will not handle stop orders on OTC or NASDAQ trades, for example. The type of data you will receive from your broker is also critical. Most provide basic stock quotes but you may be looking for more in depth information.
Charting software also varies from Broker to Broker and the level of sophistication you require will have a bearing on any fees you pay.