About Stock Brokers
Since the financial crisis began, Wall Street and the stock market have received much press coverage. Still, not much is known about stock brokers, except for Hollywood movies like "Wall Street." In reality, stock brokers can be valuable to investors in guiding them to make prudent investments. However, some investors prefer to handle much or all of their own trading themselves.
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Process of Becoming a Stockbroker
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Stockbrokers must pass two licensing examinations, called the Series 7 and Series 63. Successfully completing these exams allows the broker to advise clients, solicit business and execute transactions on behalf of the client. Stockbrokers are essentially salespeople who are paid by salary, commission or both. They "sell" or advise their clients on purchasing certain stocks based on their expertise. It should be noted that while some brokers do their own research, they are not considered research analysts, which cover an entirely different job function.
Full Service Stockbrokers
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Full-service brokers solicit business and are paid mostly by commissions. They are compensated by how often the client makes transactions. Full service brokers offer a wider variety of financial products than discount brokers, including investment advice and research. They may also offer stocks, bonds, derivatives, annuities, and insurance. As might be expected, they charge considerably higher fees than discount brokers.
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Discount Stockbrokers
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Unlike full-service brokers, discount brokers simply transact the trades the client designates. They are paid a fixed salary and offer offer no advice or research. As a result , discount brokers charge considerably lower fees than full-service brokers. Some discount brokers offer telephone service, others do not. Some discount brokers also offer online order-entry services.
Online Trading
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Nearly all brokerage houses, whether full-service or discount, offer online trading. Online trading gives the investor the opportunity to access their account information twenty-four hours a day, and make trades before and after the trading floor opens. However, especially with discount traders, an important consideration to address is whether there is help available in case of trouble with a trade. Another consideration is whether account reports are available to provide to the IRS.
Direct Investment Plans
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Investors under age twenty-one (or in some states, eighteen) cannot open a brokerage account except as a joint account holder with a parent or guardian who acts as "custodian" to the account. However, many companies have a direct investment plan which allows investors of any age to buy shares. Additionally, commission fees are lower than even the lowest discount brokerage house would charge, and there are sometimes no charges at all. This makes it feasible to buy a few shares of stock at a time, another feature which is often attractive to young investors.
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