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Picking Your First Online Stock Brokerages
Key Tips for Choosing the Best
When it comes to investing in the stock market, the barrier to entry has never been lower. Luckily gone are the days when it was necessary to fork over a massive amount of money to a broker to purchase a few shares of your favorite company. In comes Online Stock Brokerages.
Today, it’s easy to find an online stock brokerage that can place your order in an instance and help you start to build up a nice nest egg. Here are some things you might want to look into before choosing an online broker.
Make Sure A Broker Is Legitimate
No one wants to get ripped off. Unfortunately, there are firms that are more than happy to take advantage of unsuspecting consumers. There are a couple of memberships that you can look for so that you can make sure that your chosen brokerage is a legitimate operator. The first is SIPC. This stands for the Securities Investor Protection Corporation. This organization provides protection against a broker failure up to $500,000 in securities or $250,000 in cash.
The second organizational membership to look for is FINRA, which stands for the Financial Industry Regulatory Authority. This is effectively the regulator of the financial services industry. FINRA accepts firms into the industry, so a member institution has to follow regulations, which include consumer protection and education.
Look At The Fees
Another important aspect of an online brokerage that you’ll want to investigate is related to the fees that you’ll need to pay to make trades. These fees can add up, and every dollar that you pay toward the brokerage is a dollar that does not get invested for your future. Formerly, purchases of stocks that were not divisible by 100 shares cost more than those that came in multiples of 100.
This is no longer the case. Online discount brokerages rarely charge more than $9.99 per trade. Some even allow investors to buy stock for with no transaction fees. Usually, there are restrictions tied to the types of investments that you can make with these brokerages. For example, one such brokerage, Loyal3, only has access to stock from about 60 companies.
Discount brokerages will frequently allow for a flat fee per purchase, such as the $4.95 that TradeKing charges per trade. This means that you pay the same fee whether you buy one share or several thousand. Obviously, making larger purchases will cut the amount of money that will go toward fees.
What Type Of Investments Are Available?
Some online brokerages will only allow for straight stock purchases. Others will be more comprehensive in their offerings. If you only want to purchase some of the more popular consumer staple stocks, Loyal3 might meet your needs.
On the other hand, if you’re looking for an ETF that tracks the S&P 500, you’ll need to look elsewhere. Most brokerages will allow buyers to purchase exchange traded funds for the same cost as a regular stock purchase. Many online brokers will also allow for purchases on margin and options contracts.
Buying stock on margin requires putting a percentage of the purchase price down and then taking out a loan from the brokerage for the remainder. This can be risky, and you might wind up with a loan for a product that’s lost value if the market crashes. In this instance, it might be difficult to pay off the loan.
Some online brokerages also permit buyers to purchase options contracts. These instruments allow investors to set a maximum price that they’ll pay for a stock by a given date. Still others can help investors limit the loss that they might take on a stock.
Signing Up For An Online Brokerage Account
Getting access to an online brokerage account is relatively simple. An investor will need to input common personal information such as name, address and birth date. Additionally, a Social Security number is necessary, because an investor will have to pay taxes on certain capital gains and dividends. The government requires a Social Security number to make it easier for them to track these payments.
Additionally, investors will frequently have to submit a copy of their driver’s license or another government-issued form of identification. This will allow the brokerage to verify that their new client is indeed who he or she claims to be. It’s also required because of counter-terrorism efforts that attempt to limit money laundering.
Finally, you’ll probably want to link your brokerage account with your bank account. This will allow for more efficient deposits that can allow you to make purchases. They can also allow you to transfer any dividends or capital gains into your checking or savings account.
Linking your account is not absolutely necessary. You can also mail in paper checks or send money orders to fund your account; however, these methods can take several days, if not weeks. A lack of bank account information can also slow down any distributions that you might need to take care of bills. Rather than getting a direct deposit, you’d have to wait on a paper check.
Online brokerages are here to stay. They’ve done quite a bit to level the playing field between those who have just a few hundred dollars to invest per year and those who have a portfolio of millions. The costs that these brokerages charge tend to be low, and they give access to a wide range of investment products.
Of course, it’s possible to lose money on any investment, but getting started sooner, rather than later, is the most likely way to begin building wealth over time.
Thank you so much Andrew for this very informative article!! Andrew Altman is the editor-in-chief of an informational website SlickBucks.com. SlickBucks aims to help beginner investors and traders by reviewing financial products and brokerages, sharing advice and tips and publishing helpful guides for new investors and help them to get the kind of financial wealth they desire.
Facebook page: https://www.facebook.com/Slick-Bucks-1048647868614334/
Picking Your First Online Stock Brokerages
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