Monday, October 15, 2012

What is an Online Broker or Online Brokerage account?

So lets get started; what exactly is an online brokerage account?
In a nutshell; an online brokerage account allows you to be an independent investor where you can trade stocks, bonds, mutual funds, options, and a variety of investment instruments on your own without the need of a ‘financial advisor’, trader or broker. The benefits? Using an online brokerage account is unbelievably cheaper than using a full service broker or discount broker.
Full Service Broker ($$$$$): Very expensive and are usually hired by high net worth individuals (im talking about people investing millions or billions). They meet with you one on one and could charge up to $140 or more for each trade that they make on your behalf. Plus may also keep a percentage of your profits or whatever you have available to invest.
Discount Broker ($$$): May also meet you on a one on one basis and offer direct personal services. These are not as expensive as full service brokers but may still charge about $40 for each trade they make for you.
Online Brokerage Accounts ($): This is they type we will focus on in the post coming up on the blog. Each trade can cost you less than $5 (depending on which online firm you use) but also give you the option of calling in if you have any questions or if you want them to make the trade for you (ie: if you want to buy something after trading hours, etc). They may charge fees for phone services, however, it’ll never be as expensive as the other two types of brokers previously mentioned.
The caveat to it being cheaper?—well, basically, you are “on your own” and are investing for yourself without the “formal” assistance of a live licensed trader or broker whom  may have a ‘series 7’ designation and the ‘branding’ of a big corporation. However, guess what—even when trading with a “trained and certified” professionals; the majority (if not all) will still make you sign documents indicating that “the stock market is volatile and they are not responsible for any looses on your accounts” or something among those lines. Hence, think about it--- why not take the time to educate yourself and handle your own money? The risk is going to be there regardless (lets take 'experience' out of the equation for now) and at least you can be sure you are investing on things that you have done your homework and feel comfortable about rather than leaving it up to a stranger. This is my opinion and everyone is entitled to their own.
I do want to point out, however, that I understand there’s many people out there whom don’t have the time and much less the motivation to trade for themselves and rather give the job to someone else to handle. I respect that 100% and actually makes me happy as it will mean I’ll have plenty of business if I ever decide to become an investment advisor or broker for other people in the future. So, basically, whatever your decision is just know that there is a plus and a negative for anything in life and how you choose to invest your money is no exception!
Hope the following posts motivate you to open an account for yourself and at least try it out for a bit and see how you feel about being your own personal broker. On the next post I will discuss the brokerage firms I use and others available in the market. I will discuss how much money each may require for you to open an account and what I like about the ones I currently use and their differences among other tips and information. GET READY!