It’s not your father’s stock market anymore. Gone are the days when stock brokers gathered for martini-fueled lunches at exclusive country clubs. In fact, gone are the days when stock brokers even belong to country clubs, since the internet has revolutionized the way people buy and sell stocks to a degree that anyone can do it, even without a broker.
Today there are as many individual investors buying and selling online, and completely without the use of a stock broker at all. And while this may sound risky, the depth of resources is so great that the internet in general, and the online brokerages in particular, can provide virtually the same level of access to research and relevant news that any legitimate broker could point you toward, and at a fraction of the cost. In fact, with an online brokerage those services are usually completely free.
Investing money online is fast and easy, and carries no greater level of risk than using a traditional brokerage house. The only downside is that you’re on your own — barring the need to avail yourself of the online broker’s help line — both in terms of making investment decisions and dealing with the minutia of gathering and managing forms for taxes and record keeping.
Why use an online broker?
Two main reasons. First, some people prefer to go it alone. Without advice or reliance on someone else. To be the captain of their own destiny. Online brokerage site are so easy to use, there is virtually no downside in terms of timeliness or the avoidance of mistakes. You don’t even have to be all that computer literate to turn your entire investment portfolio over to an online brokerage and still sleep soundly at night.
Secondly, while the days of high commissions for stock trades are gone, online trades are still a fraction of the cost compared to placing an order with a living, breathing stockbroker.
Most online brokerage charge a flat fee per trade, usually from $5 to $15. Often they’ll entice your enrollment with as many as 100 free trades, which brings the average down for everyone other than the intense activity of a day trader.
Trades happen almost instantly. You actually see it happen right on your screen. No longer do you need to wait for a call from your broker telling you that you’re in, and at what price. If you’re online you already know.
Lower Trade Commissions
So let’s say you want to buy 100 shares of a $10 stock. That’s a thousand bucks. Most brokerage houses will charge you $35 to $50 to make that trade, which can consume the entire first-year annual return on your investment if the stock doesn’t trade up to any degree. But with an online broker, you’ll pay only about five bucks or so.
And if you’re buying, say, 1,000 shares of that $10 stock? For that your live stockbroker will want $100 or more for this $10,000 trade. But online, it’s still only that five dollar bill, give or take.
Do the math. Your cost of business is nearly non-existent at the higher volumes.
Better Record Keeping
So, as a cost of doing business at any level, an online broker provides a solution that a live stock broker can’t touch. They also provide all the associated services, such as record keeping, money management (you’ll have deposited your investment funds prior to trading), federal insurance and tax reporting, and at no additional cost. Just click the correct button and what you need will appear on your screen.
So why use a stockbroker at all these days? Well, not everybody likes to go solo, and some people still don’t trust their computer, no matter how solid the reputation of the online vendor. Like any aspect of investment, it’s all about your comfort level. Which for some translates to the cost of doing business. And on that count, an online broker will win out every time.
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Larry is the author of TradingStocks.com, a blog about stock and options trading strategies.
Article copyrighted by Larry, TradingStocks.com. Content published with author's permission.
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