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How to make your stock broker work in your favor
What everyone should know about the benefits of choosing the right stock broker.
Stock brokers are agents that buy and sell securities or stocks for their clients. They can either be a company or an individual. These agents seek to find the best deal for their clients. Choosing the right stock broker will help open up your opportunities to invest.
How does a stock broker work?
The main purpose of a stockbroker is to act as a salesman between the client and the stock market. An individual stockbroker can also offer advice to clients. They advise the client on what stocks to buy and sell depending on the market conditions.
The following conditions determine how much a broker is paid:
- Commission. This is the primary source of income for brokers. A commission is given to the broker every time you trade through them. The more you trade, the more you pay.
- Referral bonuses. Sometimes brokers will encourage and recommend certain stocks to invest into. The brokers receive a referral bonus if you decide to invest in that said product.
- Broker fees. Calling a broker for advice or to make a transaction will cost you a certain fee.
In America the average salary of a broker is $71,720 USD. This figure is subject to change according to the level of experience the broker has plus the amount of commission they receive.
Brokerages have a number of trading types. They often trade in mutual funds, stock trading, options trading, FOREX trading, and futures trading.Back to top
How do I find the right broker?
Choosing the right broker can often be a tricky process. Review the steps listed below so that you can choose the right broker for you.
- What type of broker do I want? There are generally three types of brokers. Full-service brokers, discount brokers, and online brokers are the types available. Full-service brokers offer the most comprehensive information. They distribute detailed research that will help inexperienced investors. Discount brokers offer cheaper deals but often don’t go into much detail. Online brokers are used when investors have done independent research and use the broker as a cost-effective trading service.
- Decide where you want to invest. Choose what market you want to invest in. If you invest in your domestic market, there will be plenty of brokers to choose from. However, there are limited brokers if you decide to invest in a foreign market.
- Check the costs. High currency conversion costs and high account management fees are ways that brokers charge clients. Brokers sometimes promise low headline rates but charge a high currency conversion cost.
- Understanding how your stockbroker works. Few brokers actually offer direct market access. Most trade through a market maker. Market makers are constantly ready to buy and sell stocks. They also quote prices of stocks. It is important to note that market makers only trade with with institutions and stock brokers. They do not directly work with the public.
- Do some research. Choosing the right stockbroker requires you to do your own research as well. You should know if your broker specializes in a specific market or if he handles general investments. In doing so, you will know what type of investments your broker can offer you.
- Trade stocks wherever you go. With the introduction of the smartphone, online banking and investments have made life a lot more convenient. There are several apps that allow for easy investment trading. The Bloomberg app allows easy checking of stock prices and you are able to manage your investments through this platform. Trading on smartphones have made investing easier and more efficient. Check to see if you can manage your investments with your mobile.
- Make your life easier. Look for a flexible broker that offers specific services that meet your needs. Consider if the broker offers tax-advantaged accounts. Save money and increase your investment return through minimizing tax.
What are the licensee requirements for becoming a stockbroker?
All stockbrokers in the United States must be licenced in order to practice. Before taking the mandatory tests to receive a license, an individual must be sponsored by a broker and complete a minimum of four months employment.
The Series 7 and Series 63 examinations are the mandatory tests required for all Americans seeking to become stockbrokers. The Series 7 test is designed to test one’s general knowledge of the stock market.
The course outlines ethical entry-level performance in the workplace, knowledge about securities and derivatives, and an overview of the finance and investment industry.
The Series 63 examination covers transaction law and business practices.
Although there are no prerequisites for candidates enrolling in this course, it is recommended that candidates have a background in finance. Having this qualification would help gain favor with employers, however employment is still at the discretion of the employer.Back to top
Top brokerage performers
There are several well performing brokerages in America. Merrill Lynch & Co. and Goldman Sachs are among the leaders of brokerages.
Remember that discount deals don’t mean they are great deals. Although full-service brokers are more expensive, novice investors get better returns as someone with more experience navigates the market.
Check the broker’s background. What are other people saying about the broker? Reputation is an important check when choosing your broker. Just as you research the stocks you want to invest in, research the broker you’ll be using.
Frequently asked questions
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