Choosing Stock Brokers

Not all stock brokers are the same. Choose your broker carefully

Like any other market, the stock market facilitates transactions by bringing buyers of shares and sellers of shares together. However, when the average shareholder places a trade, their buying or selling is typically carried out on their behalf by stock brokers who act as middlemen.

Using an online brokerage

While it remains true that the most common means for buying stocks is via the use of stock brokers, the stock brokerage industry has been transformed by development of the internet over the past decade.

In general, there are two broad categories of brokerages. The first group comprises 'full-service brokerages' that offer advisory services and often manage client accounts. These tend to be relatively expensive and you would often need to have a substantial minimum account size to get access to their services. In the years before widespread public participation in share ownership, full-service brokerages were the prominent middle-men on the stock exchanges.

At the other end of the spectrum lies the other broad group: 'discount brokerages'. As their name suggests, these are usually cheaper than their full service counterparts but the price comes at the expense of the personal attention that you may expect to get from the full services brokerages.

Many of the discount brokerages offer internet-based execution-only services where they simply carry out the actual share transaction and nothing more. This can often be done at very low costs.

Overall, while both types of brokerages can now be found online, the discount brokerages have benefited the most from the expansion of the internet. Nowadays, you can buy shares at a fraction of what it used to cost to make such transactions.

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