Stock Trading

Stocks are looks more lucrative than ever before and rightly so they are more stable than the trending cryptocurrency trading and can provide long term benefits if you are a careful and informed trader.But investing in stocks is not an overnight decision, you need to be sure about so many things and need to have the right broker by your side that will help maximize returns.Brokerage firms ‘broker’ the contract between you and the companies whose stocks you’re investing in. Time is of the essence when making stock trading hence a brokerage acts as a medium of transaction between yourself and the company.Before we can hit the ground running and start investing in stocks, we first need to understand about brokerage accounts and how they function.

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What Is a Brokerage Account?

A brokerage account allows you to trade securities like stocks and are highly regulated by the authorities. You can have any number of brokerage accounts and the there is no limit to the maximum transaction size for the account.

These can be limited if you have an IRA or 401(k) which are regulated accounts by the federal government.

So having a brokerage account is the basic necessity for trading stocks, but where do you start?

Selecting the right broker can be a tricky process and requires several considerations. We have collected all the information you need for you to make an informed decision. 

Choosing a Brokerage Account/Broker – What to Look Out For

Type of account

You can choose between a full service account where the brokerage firms handle everything for you for a charge or a discount account where the brokerage firms will pass on the control to you.

Some people prefer a mix of both and many brokerage firms have made a ‘hybrid’ account that brings the best of both worlds for the user.

Account Requirements

Some brokerage firms require a minimum amount before committing to some transaction while others can even lower the minimum required investment to $1.

Auxiliary Services

Brokerage has come a long way and the best firms assist the user in making informed decisions. If you’re making your own decisions and would like a more detailed insight into things, some brokerage firms offer sophisticated investment portals at a price.

If you can learn to use these tools, the extra cost is fully justified and allows for better investment decisions. 

Full-Service Brokers or Simple Brokerage Firms?

It all boils down to how you intend to use the account. If you want custom tips and recommendations through informed guesses then full-service is the way to go. These can cost more than simple accounts but can be worth the extra money. 

The extra charge can be in the form of commissions, flat payments, or some other method.

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Do I Need A Stockbroker?

If you’re planning to hold stock of a company for a long time and are not interested in ‘day-trade’ then “direct stock purchase plan” (DSPP) can help you get what you want. With the DSPP you can buy the stocks directly without involving a broker.

You can also reinvest your dividends that you receive from your current holding, this method of acquiring stock is called the dividend reinvestment plan or DRIP for short.

Brokerage Fees

Brokerages buy the stocks for you, hold them, and then sell them on your direction. Clearly all this comes at a price. Custodial fee is charged by the brokers for handling your portfolio according to your instructions.

But if you’re liaising with the advisor of the firm, you might be in for an investment advisor fee as well that will set you back even further.

Some brokerages charge a flat amount every month that allows you access to their investment tips and opportunities.

Asset Management Account – A Hybrid System

The world is evolving and stocks are evolving with it. Many brokers and firms have moved towards an asset management account that allows them to manage your insurance, your banking, and your securities all in one.

When all your portfolio comes into one account, this increases your relevant credit score and allows you to make transactions that wouldn’t have been possible before. This is because some high level securities actually require a minimum deposit of around $5000 to be able to invest properly.

Trade Confirmations and Investment Security

A trade confirmation is document that clearly shows the trade transaction that occurred. This includes the number of shares, the date of trade, the fee that the brokerage charged, and other such details that may be relevant to that transaction.

People have all sorts of buying patterns when it comes to trading securities, and chances are if you sell your securities fairly quickly your investment will not be transferred to your name during the little time you held it.

Instead, the transaction is under a ‘street name’ that may be an alias for you in the particular brokerage. The brokerage is making the trade on your behalf but the ownership certificate for securities need not be issued in such a scenario.

Investors should also understand that the brokerage is a company and like any other company it can be forced into bankruptcy. In such a scenario, your investment can be safeguarded by the SIPC (Securities Investor Protection Corporation).

Your portfolio can be transferred to some other brokerage in such an event if your brokerage is a part of the SIPC platform.

Top 5 Brokers February 2022

There are a number of different brokers out there but the ones that stood out the most include:

  • Fidelity Investments
  • Merrill
  • E*Trade
  • Interactive Brokers
  • Webull

All the brokers we selected bring $0 minimum requirement and offer some exciting discounts or promotions that make them worth it.

Where can you learn to trade stocks?

Thinking about investing but are lacking the confidence? We have discussed many important aspects that you need to know for trading but if you still need more information, Investopedia has the most comprehensive guide on investing that will be all that you need to get through investment decisions.

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