Stock Market For Beginners » Brokerage Accounts

Stock investing tips – Beware of brokerage fees

admin — Tue, 18 Aug 2009 03:20:49 +0000

Investing in stock market can have its own share of ups and downs. When the market is down like in current times, it helps if you save some money using some basic stock investing tips and advice. As people say, a penny saved is a penny earned. Using these stock investment advice, you can save some money even in this recession period. These small things may not save you millions of dollars but if you see over a longer term these things help you get the maximized return from your investment.

In this article, we will talk about brokerage fees, types of brokerage fees charged by brokers and how to avoid them. The brokerage houses would often try to woo the potential customers by showing all the nice features in their online trading systems. They would tell you how easy it is to open an account, transfer assets from one broker to other, how easy it is to transact on their system and how cheap it to make a trade is. What they will not tell you in advance are the various types of brokerage fees associated with these online trading accounts.

Most companies have some underlying fee structure in all online trading systems and normal agent based system. It is important to understand what these fees and charges are before you select a brokerage house. Some brokerage houses call themselves as true ‘discount brokerage houses’ but they in effect prove to be costlier than other premium brokerage houses due to their fee structure. Some of the commonly used fees and charges which the investors should be aware of are:

Inactivity fees – As the name suggests, this fees is levied on the account if there are not enough number of trades being made from your account. Broker houses make money when you buy or sell stock. If you are not doing any trading, they have an overhead to maintain your account. That is the reason, they set these fees.

Account Maintenance Fees – This is a standard fee which you will need to pay on a yearly basis. They charge these fees to maintain your account and the features they provide you including mailing statements, maintaining historical data, providing real time stock quotes etc.

Transfer Charges – These charges are levied on you in case you want to transfer the securities to another broker. Basically, it is present to discourage you from going to another broker.

Minimum Equity Maintenance Fees – Some brokerage houses have a requirement to keep a minimum amount of equity in the form of cash or equity in their account to avoid minimum equity maintenance fees. Sometimes, these fees can be as large as $20 per quarter.

The savings done by following these stock investing tips may not be huge but they still do count for a small investor. These are even more relevant in situation like recession which is prevalent today.

Online stock trading

admin — Wed, 05 Aug 2009 03:54:34 +0000

Online stock trading allows you to buy and sell your stocks directly on the internet using an online broker. Online stock trading has become very popular in recent times because this service eliminates the need for a stock broker. Now, you need not call your broker every time you want to buy or sell any stock. That process was very time consuming and not very cost effective.

Earlier, you had to depend upon the recommendations of your stock broker while doing trading in stock market. More often than not these brokers used to manipulate your decisions based on their senior management directions and the commissions they used to get on different stocks. Therefore, you could never trust your stock broker to give you an honest and right financial decision.

But times have changed since the internet has come into picture. There are various online brokers which are available on the internet now. You can directly open your account with one of these online brokers and trade from the convenience of your home. There is no physical broker involved. The added advantage is that you can do the trading directly and the trade execution happens in a couple of seconds. Most online traders guarantee the execution of trade within a few seconds of your order. This is a great feature since it saves you a lot of time.

Other major advantage of using the online brokers is that the commission charges are much less now. Since the online broker companies don’t have to employee hundreds of physical brokers to do the trades, their operation costs are low. Therefore they are able to pass on that benefit to you. Most online brokers take a nominal commission between $7 and $10 per trade which is less than traditional brokers.

Opening and managing an online trading account is very easy. Since everything is done online so you hardly have to go to any office to submit your application. The easiest option is to fill up the application form electronically giving all your personal details. The online broker reviews your application and approves it. You can setup your personal savings or checking account with the trading account using an ACH facility. In this setup, the money can be easily transferred from your personal account to trading account when you need money to buy stocks. This makes the whole process of online stock trading easy and free of any physical check writing.

Some people are intimidated by this procedure since they are afraid of online fraud scams which they keep on hearing. Their fear is legitimate since there are a lot of fraudulent websites on the internet. It is recommended to always go with a reputed online brokerage house to prevent any such thing happening to you. Some of the best online broker companies available today are Fidelity Ameritrade and E*TRADE. In another topic, we will cover how to choose the best broker for online trading account.

Buying stocks online – How to choose online stock brokers

admin — Wed, 05 Aug 2009 03:51:36 +0000

Online trading facility started to emerge in the 1990s and it became a great alternative to the traditional way to doing stock trading. Till the time online stock trading systems came into existence, people used to take help from stock brokers to buy and sell stocks. This procedure was usually time consuming and also stock brokers could easily manipulate the decisions of the investors based on their interest and commissions.

Online stock trading system has eliminated these issues. The stock trading is fast and easy thanks to the increasing use of internet. Not only this, the online trading system is also cost effective. You could save good amount of money since the commissions on online trades are less than physical stock brokers. There are various online brokers available in market today. You have option to choose from hundreds on such online brokerage houses but you should use some discretion while selecting the one for yourself.

There are various factors which need to be considered while selecting the right online trading service. Some of them are:

The reputation and the customer base of the company. There are a lot of companies which are nothing but scams. You need to do some research and find a company which has a good history and reputation.
What are the commissions charges per trade of the type of securities which you want to trade?
Is there any minimum investment amount required by the company before you start online trading?
Is there any inactivity fee per year in case you don’t want to trade for a specific period of time?
Is there any guidance tool or telephone support available? Some companies like Fidelity provide these extras.
What is the financial background of the company? Is it stable? Some good companies which are reputed are generally a bit more expensive than others for the service they provide. Sometimes, this extra cost is worth the peace of mind they offer.
Lastly, how is the online trading experience in terms of online interface, easy of money transfer etc? For some people, this is one of the major deciding factors.

As mentioned earlier, you have to be aware that there are a lot of companies which are nothing but scams and you need to be vigilant about them. A few online brokers which are recommended by experts are Fidelity, TDAmeritrade, E*TRADE and Scottrade. Buying stock online using these online brokers is easy but dangerous if you are not careful about security of your computer. You should always have latest version update of anti-virus and anti-phishing software which would help you trade in secured manner.

Discount Stock Brokers – Select the Best

admin — Fri, 29 Aug 2008 03:32:15 +0000

Discount stock brokers as the name suggests are the brokers who discount the brokerage they charge to you. What they do is usually that everything is automated via the web and you can then enroll on their site. This kind of brokers are bets for the stock market for beginners trading

You then add money on to the account and begin trading.

This is quite opposite to the full service brokers who have a large number of advisors who advise you on everything that you can invest and a help you create a portfolio for you. Plus they also make sure that you are regularly given tips on anything happening in the market and most have them have online stock trading facility also.

Of course if they provide such level of service they you need to decide if they should will charge high or less. Of course they will charge high plus they charge for the profits they make for you over and above a certain percentage.

Discount brokers do not advise you on anything and you are your own best judge. The brokerage they charge can be as less as $0 to $10. So you will have to buy stocks on your own.

Discount brokerage firms are usually all net based and they have purely automated systems as opposed to traditional brokers which have all the other things going for them including publishing traditional market research reports and also they put in trades through their system at the back end and will not sometimes allow you to trade by yourself.

In the end you decide for yourself whether you want to go with the discount stock brokers or the full service brokers if you want to buying stocks online.

Brokerage Accounts – Cash,Margin or Discretionary

admin — Sat, 12 Apr 2008 17:42:36 +0000

A full service broker or a discount broker is likely to offer three types of accounts which are namely Cash Acoount, Margin Account and Discretionary Account

Understanding each type of account is beneficial for the purpose of the kind of trading you wish to engage in and the also the amount of risk you are willing to take.

Cash Account – Stock Market for beginners means using cash upfront to buy certain stocks and then sell them at a profit. For this simple type of transaction the most simple type of account that is offered by the brokerages is the cash account.

Most online and discount brokers will ask you to deposit enough money to cover your trades and that is a mandatory requirment for almost all of them. They put this money into a interest bearing account and will transfer the money to the brokerage account once you put in a trade order to buy. Same goes for the sell , that is, when you sell the stock, the cash gets deposited your brokerage account and is available for the next purchase.

A full service broker will however allow to have a leverage of three days after you put in a buy trade to pay the amount of the purchase. This is mostly based on the kind of credit worthiness the full service broker thinks you have. Three days is based on the amount of days that a trade takes to settle and the date on which the trade settles is known as settlement date (will be discussed in later posts).

Margin Accounts – A lot people will advise that the stock market for beginners means risk and then a lot of rewards but you can use your own discretion in terms of what kind of risk you wish to take and what type of rewards you would like . Margin account is based on the concept of higher risk taking and obviously higher rewards. Margin account for a behinner would mean that you can get upto 50% of the value of the trade from your broker as funding. As an example let us say you are purchasing 10 shares of X stock at $100 each, that means you would be required to have $1000 in your account or if you have amargin account you only pay $500 and the rest of the money is paid by the broker.

Now how the reward is higher in this case is that suppose that stock went upto $150 then you would have earned a total of $500 as a profit. Now since you only paid $500 in the beginning because you had a margin account your return on investment is 100% whereas if you would have had a cash account you would have paid $1000 and your return on investment would have been 50%.

Now you would argue where is the risk and the risk is in the fact that when the stock falls then the broker can issue a margin call which means two things either you can deposit cash into the account to raise the value of the money borrowed or you can sell the stock to pay off the broker.

Discretionary account – This gives the broker to sell or buy the stock without notifying you. Now as a beginner do not ever go for this king of account since that means you are trusting your broker a lot and it is like giving him a blank check.

As a stock market beginner think well what options do you have and use the safest route to get your feet wet in the market before trying the riskier option.