Discount Stocks Brokers - In other simple words, they carry out
Discount brokers are individuals or companies that execute trades for investors at significantly lower commission rates compared to full-service brokers. They primarily handle buy and sell orders and provide basic market information, making them a cost-effective option for self-directed investors.
What Are Discount Brokers?
Discount brokers can be broadly categorized based on the types of assets they handle. These include discount stock brokers, discount goods and services brokers (for commodities), and discount real estate brokers. For those interested in the stock market, discount stock brokers offer numerous opportunities by providing platforms for trading stocks and other securities.
When it comes to commissions, discount stock brokers generally fall into two categories:
- Normal Discounters: These brokers typically charge commissions that are around 51% less than those of full-service brokers.
- Deep Discounters: Offering the lowest commission structures, deep discounters can charge 60% to 90% less than full-service brokers.
What Services Do Discount Brokers Offer?
Despite their lower fees, discount brokers provide a wide range of services designed to support active traders and investors. Many offer no-load mutual funds, often with minimum commissions around 0.5%, and some even provide free mutual fund purchases through special arrangements.
Common services include:
- Executing option and stock trades on major exchanges like NYSE, AMEX, and NASDAQ.
- Providing free one-page Standard & Poor's Stock reports.
- Offering 24/7 access to touch-tone telephone stock exchange quotes.
- Free check-writing privileges.
- Dividend reinvestment services.
Some discount brokerage firms also offer detailed information on current stock costs, daily trading volume, existing dividends, and yield forecasts at no additional charge.
How to Choose a Discount Broker?
When selecting a discount broker, cost and value should be your primary considerations. Commission schedules can vary significantly depending on the brokerage firm and the volume or value of shares you trade. Always review the fine print for hidden costs, such as postage fees, late payment fees, and transaction fees.
Since many discount brokers do not have local branch offices, it's crucial to research their background and policies thoroughly. Ensure the discount broker is properly licensed and experienced. Stock referrals and online forums can also help you find a reliable broker.
Key Questions to Ask Potential Discount Brokers
Before committing to a discount broker, ask these fundamental questions to ensure they meet your needs:
What is your minimum opening balance requirement?
There's no point in pursuing a broker if your intended opening deposit of $2,000 doesn't meet their $20,000 minimum. Clarify this upfront to avoid wasted effort.
Do you offer 24/7 customer support by telephone?
Whether you're a novice or an experienced trader, issues will inevitably arise. The ability to speak with customer support at any time is crucial. Email support is often too slow for urgent problems. If you trade outside standard business hours, 24/7 phone support is a significant advantage. As a test, try calling their customer service number at various times to gauge their responsiveness.
Do you have a physical office in my area?
While we live in the internet age and most business can be conducted online, there may be situations where an in-person visit to your broker's office is the most practical way to resolve a complex problem. Some investors prefer to entrust significant funds only to brokerages with local offices.
Are your accounts underwritten by the SIPC?
Most major brokerages underwrite your account up to certain limits with the Securities Investor Protection Corporation (SIPC). This protects your assets in the unlikely event the brokerage firm goes out of business. It's always wise to confirm this coverage.
Understanding Research Tools and Reports
If you're an investor who relies on fundamental analysis, access to market analyst research reports can help you make more informed decisions. While free sites like MSN Money offer plenty of basic information, they often lack in-depth research reports. This is where your broker can provide value.
Do you offer free S&P stock reports?
Standard & Poor's (S&P) does not engage in investment banking, so its ratings are generally free from the conflicts of interest sometimes associated with other research providers. S&P rates stocks from one to five stars, with five being the best. Historical data often shows that five-star rated stocks tend to outperform four-star stocks, and so on. Many brokers offer free S&P reports, and this should be a requirement if you are a medium to long-term investor.