Going for Broke®: Discovering Your Brokerage Options

In This Profile

Discovering broker types and services
Finding out about broker service options
Sorting through different types of brokerage accounts
Deciphering trading rules

As an individual, you can’t trade stocks — or bonds, or options, or futures — unless you have a broker or are a broker yourself. That doesn’t mean, however, that you have to work with a human being to trade stocks. Online brokers and direct-access brokers enable you to make trades electronically, so you never have to speak with a human being unless you’re having a technical problem.

As an individual, you can’t trade stocks — or bonds, or options, or futures — unless you have a broker or are a broker yourself. That doesn’t mean, however, that you have to work with a human being to trade stocks. Online brokers and direct-access brokers enable you to make trades electronically, so you never have to speak with a human being unless you’re having a technical problem.

✓ Why You Need a Broker

Unless you plan to get your brokerage license from the National Association of Securities Dealers (NASD) and set up shop yourself (which is hard — and expensive — to do), you need to work with a broker to be able to buy and sell stocks. How you choose a broker is based on the level of individual services you want. The more services you want, the more you pay for your ability to trade.

As an individual, you open your account with a brokerage house, but if you work with a human being, that person is considered a broker. Brokerage houses or brokerage services are also usually referred to as brokers for short. Actually there are many levels of brokers, which we cover in greater detail in Chapter 20 when we talk about licensing.

On one side of the spectrum is the full-service broker who does a lot of hand holding and offers stock research and advice and other human-based services. When using a full-service broker, you pay a significant commission for each stock trade. In the middle are discount brokers that offer fewer services, but charge less per trade. On the opposite side of the equation are direct-access brokers, who offer few human-based services and instead provide extensive trading platforms so you can trade electronically and access the stock exchange systems directly on a real-time basis.