Active trading in stocks and other securities requires access to the best online broker. The services of a reputed broker are required whether you’re a high-volume day trader or make only a few trades each year. However, with so many types of online stock brokers available to investors, it can be tough to choose the best broker.
What is a stock broker?
A stock broker is a firm that executes buy and sell orders for stocks and other securities on behalf of retail and institutional clients. Different stock brokers offer varying levels of service and charge a range of commissions and fees based on those services. The most commonly referenced stock broker firms are discount brokers.
Do you need a lot of money to use a stock broker?
Little money is necessary to start a brokerage account. Many discount brokers offer affordable account minimums, making it easy for anyone to get started.
What you need to open a brokerage account?
Make sure you have the following details handy when you’re ready to start the process:
Name, Address, Date of birth, National Insurance number (or taxpayer identification number), Telephone number, E-Mail Address, Driver’s license, passport information, or other government-issued identification, Employment status and occupation, Annual income, Net Worth.
Trading vs. Investing
Generally, when people talk about investors, they are referring to the practice of purchasing assets to be held for a long period of time. Investors hold their assets for the long term so that they may reach a retirement goal or so their money can grow more quickly than it would in a standard savings account accruing interest.
In contrast, trading involves buying and selling assets in a short period of time with the goal of making quick profits. Trading is typically seen as riskier than investing and should be avoided by the inexperienced and those new to the stock market.
Discount brokerage vs. Full-Service brokerage
There are different types of brokers that beginners may consider based on the level of service and cost they are willing to pay. A full-service, or traditional broker, can provide a deeper set of services and products than what a typical discount brokerage does. Full-service brokers can give their clients financial and retirement planning as well as tax and investment advice. These additional services and features usually come at a steeper price.
If you are looking for a cheaper option, a discount broker could be a better choice. Discount brokers offer low-commission rates on trades and usually have web-based brokers or apps for you to manage your investments. Discount brokers are cheaper, but require you to pay close attention and educate yourself. Many discount brokers provide educational resources to help their clients learn about trade and investment.
How to pick the best online broker?
To choose a stock broker you must ask yourself a series of questions. These include: Am I a beginner? How much can I afford to invest right now? Am I a trader or an investor? What kind of assets would I like to invest in?
There are quite a few things to consider when going through this process:
Can I withdraw money from a stock broker?
Withdrawing your money from a brokerage is relatively straightforward. When you have money in a brokerage it is generally invested into certain assets. Sometimes there is cash left on the side that is in the account but not invested. This excess cash can always be withdrawn any time similar to a bank account withdrawal. The other money that is invested can only be withdrawn by liquidating the positions held. This means selling the assets that you purchased like stocks, ETFs, and mutual funds. Once sold, you can withdraw that cash.
Robo-advisor – who should choose a robo-advisor?
Robo-advisors are becoming increasingly common. However, it’s worth noting that robo-advisors and discount brokers aren’t the same product. They differ in important ways, including in the way they make investment decisions, the minimum funding requirements, and the fee structures.
Robo-advisors are investment managers powered by machine learning and artificial intelligence algorithms. They pick the investments in your portfolio on your behalf. They then invest and reinvest for you. All you need to do is provide a way to fund the account, and then withdraw when you wish.
You don’t have the option to choose your assets with a robo-advisor as you do with a brokerage (either full-service or discount).
Robo-advisors certainly have their place, and there’s no reason you cannot have both a dealing account and a robo-advisor product. However, robos do occupy a different place in investment strategy, usually for long-term horizon investments.
How to determine your trading type?
Before you look for a broker, you need to learn more about your trading personality type and identify your goals. This information will directly affect the type of broker you need and ultimately the individual broker you choose.
Determining your trading type starts by understanding whether you want to trade or invest.
Active trading is a different thing from buying shares and sitting on them. You’ll need much more from your broker, including reasonable dealing fees, and more.
When you trade passively, your needs change, and you’re likely to benefit from products that are more retirement-friendly and come with more advice.
What’s the difference between active and passive trading?
The debate between active and passive investing is polarising, but the truth is that both have merits. Your strategy depends on your goals as much as your personality.
Active investing involves a hands-on approach to trading that attempts to beat the market’s average returns by taking advantage of day-to-day and week-to-week price fluctuations.
Passive investing looks towards long-term trends in the market. It requires a different kind of personality, one that knows when to hold on to investments and keep a steady hand in the face of turmoil.
This article is for information purposes only.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.