Unlike in some years back when trading securities and stocks meant that you had to call or visit a brick and mortar brokerage firm to buy or sell securities. Today, you only need a computer and internet access to start investing online. However, just like in traditional investing, you need an online broker before you begin trading. An online broker is an entirely independent player that interfaces with customers over the internet. It can be an individual, but most of the time, it’s a firm. People can visit the firm when seeking to buy or sell financial and non-financial products on the internet rather than going to a physical place.
Online brokers act a go-between by handling customers’ orders to buy or sell securities. Brokers’ primary function is to help you open a trading account and execute your buying or selling orders. Once you register with a broker, you give them the power to trade on your behalf.
With their perfect knowledge of the financial markets, they also provide research and thorough market insights. Most online brokers conduct an in-depth analysis of the financial markets and give you buy or sell recommendations. They also do technical research and offer you with intraday trading tips and market trends.
They also provide personalized service. For example, on when to make transactions and guide you on the things to look for when making trading decisions. They may also present you with other opportunities where you can invest besides securities and stocks.
Now that you know the roles of an online broker, what things should you consider to ensure that you get the right one?
1. Whether they are discount or full-service brokers
Discount brokers buy and sell securities on your behalf without interfering with your decisions. They just follow your instructions. On the other hand, full-service brokers are actively involved in your trading decisions. They offer expert advice, recommendations, and are involved in much of the legwork. The disclaimer is that their services are not cheap
2. Fees charged and cost associated with trading
If you want to derive value from your online investment, you need to know the fees and costs of a particular brokerage firm beforehand. Most firms require you to have a certain amount of cash to open an account. There also minimum balance requirements depending on the type of account you open. You should also seek to understand their fee structure and withdrawal rules.
3. Your investment style
If your aim is to make a quick kill by purchasing and selling securities within a short period, make sure you get an online broker with low execution fees. Exorbitant fees can take out a significant portion of your returns.
While trading with an online broker is the most typical approach, it is also possible to trade without one. If you are the kind that enjoy cutting out the middlemen in a transaction, you can trade without involving a broker. However, self-trading comes with some pros and cons.
The most significant benefit is saving on the fees and costs associated with each trade. Secondly, it also allows you to react to changes and news in the market without delays. You also get to learn and experience the mechanics of the financial market first-hand.
However, self-trading also has its drawbacks. For starters, trading without an online broker limits your opportunities as there are few options available when you are the one trading as compared to when you have a broker. Additionally, it can be cumbersome and inconvenient to fill and file all the paperwork when self-trading.