About Online Brokerage Accounts
You can't trade stocks and other securities from a computer without an online brokerage account. Working through an online broker, you pay set fees depending on your trades and then the brokerage firm executes the orders on your behalf. Unlike a conventional stock broker, an online stock brokerage company executes trades both electronically and automatically, without requiring you to go through a human being throughout the entire process.
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History
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Online brokerage companies are a relatively recent entrant to the stock market. The growth of the Internet made the business model possible. It's difficult for most people born in the last two decades to believe, but before the Internet, all stock trades had to be executed over the phone. Before that, traders had to write down their buy and sell orders on scraps of paper and deliver them to stock market operators to place a trade. The birth of online brokerage companies was quickly followed by a massive explosion in trading volume as it became possible for more people to trade stocks without needing to go through a broker.
Function
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An online brokerage account gives you the right to buy and sell securities at will during trading hours. Typically, trades are executed as quickly as they are sent.
There are significant differences in services offered by varying online brokers. The most significant are: fees and online trading interface. Each brokerage uses a different interface for trading - sometimes a Web application, and others a full featured computer program. -
Significance
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Deciding which online broker to use can be difficult. Most online brokerage companies have a minimum amount of money required to invest and often require a regular membership fee to participate. These variable can make it expensive to shop around between firms. Look for the brokerages that offer you a brief free trial so that you can review the user interface and see if you like it. Determine how challenging it is to track the asset classes want to trade in.
Considerations
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Many brokerage companies charge different amounts depending on the kind of invest. Still others don't even let you invest unless you invest very large amounts of money, which makes it harder still to shop between them. Some of the links below in the references can help you compare the various brokers available regardless of how much you plan to invest or trade. Still another element to consider is whether or not the broker offers commission free funds to trade. These often involve specific promotions so determine the kinds of deals you can get from each brokerage you consider.
Effects
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Finding the best online brokerage account is an important decision. If you trade frequently, it's easy to get accustomed to the user interface of a certain online broker, making it more difficult to switch to a different online broker later. Customer service is also an important consideration, particularly because of the very large amounts of money that you're likely to go through using such a service. Shop carefully and you will reap great returns in the future.
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Resources
- Photo Credit Larsz, Flickr
