Choosing a Stock Market Broker

Learning about brokers.

People have a general idea on what the stock market is and how it works. Most of the time, the same people have a general idea on what a stock market broker is and how one works. A brokerage company is a company that specializes in connecting people to the stock market. The companies have employees, called brokers, whose job it is to connect you to the market.

When you place an order on your broker's site, the order is sent to the broker. They place your order at the price you put, or better. These specialists have earned licenses that allow them to effectively handle your money. Different brokers offer special benefits that others do not. There are a few things you should take into account when you choose your broker. 

Leaving it to the Pro's.

Brokers are specially trained to execute your orders for you. Some brokers go as far as handling your money for you. These brokers will take your money and invest it for you in what they believe is the best way possible. These brokers are essentially the typical kinds. The ones that call you and set up an account for you then manage it. These 'direct' brokers, also known as full brokers, will handle your money and create something called a portfolio. The brokers will then try and make the most profit out of the portfolio for you. The brokers make money by charging a commission on the profits they earned for you.

Commission

Here is an example. Say you trust your broker and set up a portfolio consisting of $1,000. Your broker is extremely talented and turns that $1,000 into $2,000. That is a 100% gain. Sounds good, but you forgot that you have to pay your commission. Some commissions are charged by percentage of profits. Say the broker will get 10% of the money he earned you. Out of the initial $1,000 profit, you get to keep $900. Not bad. $900 is more than $0 and a lot better than losing money. 

Some brokers have an initial commission coupled with a percent commission. This means that they will charge for every trade they make for you, like $50. Even if the trade goes badly and you lose money, the broker gets $50. If, the trade goes well they wont charge the full 10%, but instead will take %5. This type of set up allows the broker to make money no matter what happens to the trade. The broker also won't be able to take as much of your profits either. On that $1,000 profit, the numbers still add up to $100.  Now imagine if it was $10,000 profit. The 5% is a lot less now and you get to keep more money. 

Choosing the right broker will help decide how aggressive you want your portfolio to be.

Stock Market Broker: Aggressive or Passive?

The brokers that only charge a percentage from your profits are typically the more aggressive brokers. The trader makes money only when you make money. That means that he could either be a slow trader and look at the long haul or be a short term trader and try and make money now. Most brokers mix the two into a two-tier system. They have short term and long term profits. Percentage brokers will trade passively on long term to try and curb the risk they take short term. 

The base price plus additional percentage brokers usually will try to make you some money using a medium term approach. For them, they make money based on the number of trades they make plus the profits they earn. They will take a medium term and short term approach. For them, the more trades, the more money. The brokers will curb some of the risk of shrot term trades with medium term trades.

The Brokers

The best brokers, honestly there is no best broker. Each broker has their own style and risk levels. Some are about volume of trades with small profits. Other brokers only make a few trades but go for the big bucks. It all depends on your own risk level. You are the one that will decide where to put your money. There are a few steps you can follow in choosing the right broker for you.

Risk Awareness

Choosing a broker is a pretty intense task. One thing you should take into account is how much risk you want to take on. Younger people will typically take on more risk and will make riskier trades. The younger the person, the more time they have to work and they usually don't have a family to look after. If you want a high risk broker then set up a one on one meeting and explain what you want. High yields and you accept the fact that there are high levels of danger also. Don't get upset if you lose your money. You chose the high risk in the pursuit of high gains.

A safer approach for younger people is a medium risk broker. In the meeting emphasize how you want some long term stocks that have growth potential and dividends. You also want to have a portfolio that has a few short term high risk stocks that will allow you to accumulate money faster. The short term stocks have a lot of danger, but the profits you could get can go into the long term stocks. In the end be sure to ask all of your questions to the professional broker. 

For older people, I say that kindly, such as heads of family, a more stable approach should be thought about. Look at a broker who is more apt at long term and medium term investing tactics. They will provide a stable income through dividends. To make money with dividends you need a lot of shares. That is why people with some investment capital (usually not younger people) will be able to take advantage of the dividends. 

Communication is key.

Talk to your broker. It is that simple. If you want to know more about their trading risks, ask them. You shouldn't commit to a broker unless you know fully what you are getting into. For those not inclined in the stock market, finding a good broker will help you gain knowledge and comfort in knowing your money is taken care of. There are times that take everyone by surprise, such as the recent financial melt down. That is why it is important that you do not put all your money in the market. Put in enough money that you will see results, but you won't be hurt if you lose it. If you don't trust brokers you can always invest your own money. For more information on investing your own money, check out this article.