Which Broker should I use? Online or Telephone?

If you have decided you want to start trading shares, you have a method, have practiced with real examples, etc. now you need to think about which company you would like to buy your shares on your behalf. Unless you want to go to the trading floor itself and do your own buying (which I do not know if possible or not), you will be inclined to buy your shares through a broker. But which one to use? That is the question!

Brokers come in one of two options, nowadays probably both. This means that they provide either on-line services or by telephone. Online trading usually consists of over the web trading where you can apply for an account on-line, add or withdraw money from your account and most importantly actually buy and sell shares over the net with almost instant transactions taking place. The other option is the more original trading over the telephone. This is a dying method compared with on-line trading though of course, should the system which drives your on-line activity go down, and then the company will also provide telephone assistance. Most stock brokers however are tapping into the convenience market which means online trading is a lot more popular and the telephone option is a last resort. Aside to this however the shares of some companies may have a particular character which can only be traded over the telephone. I do not know why this is, but it exists and something you may come across.

Cost compared with assistance or advice will not doubt be the main driving factor in the decision to use which broker. Brokers differ in their prices and what they offer. The main costs involved in trading with a broker will be a set fee, followed by a transaction fee for every trade you might make. Some brokers offer no standard fee and charge only for transactions though of course with these you can expect less costumer value. More service, stock tips and advice will come at a price and should be taken into account. If you are confident in your strategy, competent to know which trades to make and when, maybe a less customer focused broker will suffice. If you want extra support, maybe a broker who offers trading advice will be more up your street. Just remember, you get what you pay for in this game, so advice will not come for free.

The type of trading possibilities may also differ between companies. For example, a broker may only offer trading possibilities within the UK market but may offer commodities (physical goods like gold, oil, wheat, aluminium, etc) trading or Foreign Exchange or even funds. This is good if you are an expert on the price of gold for example. However if you had your eye on Microsoft, then you will need to look elsewhere as Microsoft is traded on Nasdaq, a USA based stock exchange. Of course there are brokers that provide facilities to trade on foreign stock exhanges so the possibilities are there for that. Within trading, brokers also offer different options to help your trading, again sometimes at a cost. Placing stop or limit orders, or setting a trade to start when the price of a share hits a certain value are now becoming popular options for brokers to offer to their customers. Some of these again you may find very usefull, especially stop and limit orders, if you do not have time to check your trades regularly. Again the cost may be a deterent or a broker may offer such services for free which may be an attraction.

Brokers come in all shapes or forms, which provides investors with a important choice. Indeed, brokers can have quite an impact on how you invest and the ensuing results. Basically, there are two major types of brokers, which we describe here:

Full-Service Brokers

As the name implies, Full-Service brokers offer a broad selection of aids and assistance. Not only will full-service brokers execute trades and manage your account (or portfolio), but they will provide advice, counseling, and a hand to hold when making a decision. Some people enjoy this type of attention and it is actually an asset to novice investors. When working with full-service brokers, you are typically assigned an account representative who gives advice and sells the stocks that the broker’s analysts think will perform best. While this is all very helpful to beginners, be forewarned that this advice and counseling does not come without a price tag. Their trades can cost into the hundreds of dollars, as opposed to less than $15 with some other brokers. Thus, active or more experienced investors should avoid full-service brokers.

Leaders in this field: Goldman Sachs and Morgan Stanley

Discount Brokers

Years ago, discount brokers were for market-savvy people who spent fortunes on their own investment information who did not need the recommendations of full-service brokers. However, financial information is so available and inexpensive that full-service brokers provide little advantage. Therefore, we strongly endorse using a discount broker. Trades are typically executed from between $6.95 to $49.95, depending on the broker. All that is lost is the personal touch and broker recommendations. Otherwise, the trades are executed as quickly. Additionally, some discount brokers offer extensive research tools online, which are quite valuable. Plus, most discount brokers offer Internet trading, a boon to many investors.

One last note:

Are they actually able to do the trade for you?  For example Selftrade vary their online limit and leave you with an expensive sell, or having to repeatedly sell at smaller values. They’ve even repeatedly lowered their limit every time I put in a buy order obviously in an effort to get me to phone through and charge me more. Volume on that stock that day was zero so it wasn’t a crowded entry.  My advice to you would be:-

1. Don’t over trade.
2a. Use an established and recommended online broker.
2b. Using a reputable personal broker will often get a better price and an easier exit/entry but may charge more. Worth it for higher value trades.

After all, you should only really be buying shares in a company if you’re convinced they’ll go up for a variety of reasons. It takes practiced discipline to keep to that rule!