Tips on Identifying the Best Stock Broker: Understanding the Types

A stock broker provides unmatched assistance in buying and selling stocks to maximize returns

. Since stock brokers are abreast of pertinent economic, political and other information, they can help identify potentially lucrative trades. Note that stock brokers are basically intermediaries, and execute deal on their clients' instructions. However, there are some clients who vest their brokers with the power to execute deals independently, without their permission.

Types of Stock Brokers

Broadly speaking, there are three types of stock brokers:

Full Service Stock Brokers

As traditional stock brokers, full service brokers assist their clients with a wide array of services, typically working for a large organization. Most full service brokers deal in buying and selling multiple investment vehicles, besides stocks, including treasury bonds, commodities and derivatives. However, note that such brokers and services come at a price, in the form of high commission.

Discount Brokers

As the name suggests, the reduced price is the key feature of these brokers. Discount brokers are a good choice for new investors with limited funds. Usually available through the Internet, these brokers heavily rely on transactions through their websites. As a result, there is limited personal contact, clients receive minimal advice and are expected to manage most of their transactions through the online interface provided by the discount brokers.

Money Manger

Money managers are responsible for handling significant portfolios, and are used by big investors. Money managers assume the overall responsibility of investing and managing the complete portfolio, typically in exchange for a percent of returns from the assets managed by them.

Choosing the Best Broker: Understand Your Investment Pattern

If you are a casual investor, with moderate sized capital, hiring the services of a discount broker is the best option. Since you are likely to make trades sporadically, and are basically investing in standard investments, you will hardly need advice at length.

If you are a high net-worth investor with thousands, if not millions, in the stock market, then getting discounted services will not help you. Besides, you are likely to get discounts automatically on bulk trades. Therefore, a discount broker makes little sense in this case. What you require is a money manager.

Finally, if you are a frequent trader, finding a stock broker who charges a low fee is a key consideration. Note that, both discount and full service brokers offer discounts on frequent trades. The need here is to decide whether the higher commission charged by full service brokers justifies their services and fits our budget.

Tips on Identifying the Best Stock Broker: Understanding the Types

By: Russ Babka

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