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Do I Need A Stock Broker To Invest – To buy shares, you will usually need the help of a stockbroker, as you cannot simply call the stock exchange and ask to buy shares directly. When you use a stock broker, whether in person or an online platform, you can choose the investment you want to buy or sell and how to trade.
In this regard, there are two broad categories of brokers to choose from: full service brokers or online/discount brokers. Below we discuss how you can use these options to trade stocks on your own.
Do I Need A Stock Broker To Invest
We’ll also talk about a third option: the Direct Stock Purchase Plan (DSPP), where investors can buy stock directly from certain public companies. This allows you to buy shares online without a broker; However, this option is limited in its usefulness, as you would need to maintain DSPPs in all companies in which you own shares, rather than having your entire portfolio in one place. What’s more, many online brokers today offer commission-free stock trading, often making it easier and a more cost-effective option.
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In most cases, stocks are listed and traded on exchanges, licensed venues where buyers and sellers meet, often with the help of a broker or other intermediary. These intermediaries will be members of the exchange and use their access to buy and sell shares on your behalf. Major exchanges in the United States include the New York Stock Exchange (NYSE) and the Nasdaq market.
Smaller companies with less liquid stocks and minimal market capitalization (sometimes called penny stocks) can alternatively trade over-the-counter (OTC) on more loosely regulated platforms such as the OTC Pink Sheets. The shares of these companies are often more volatile and riskier, so investors who choose to trade in the OTC market should engage in additional due diligence and understand the risks involved.
Full-service brokers are what some people see when they think of investing – well-dressed businessmen sitting in an office talking to clients. These are traditional stock brokers who will take the time to get to know you personally and financially.
They consider factors such as marital status, lifestyle, personality, risk tolerance, age (time horizon), income, assets, debts, and more. By learning as much about you as possible, these full-service brokers can help you develop a long-term financial plan.
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These brokers can not only assist you with your investment needs, but also assist you with estate planning, tax advice, retirement planning, budgeting and other financial advice – hence the term “full service”. They help you manage all your financial needs now and long into the future and are designed for investors who want everything in one package.
In terms of fees, full-service brokers are more expensive than discount brokers, but having a professional human investment advisor by your side can be worth the extra cost. Today accounts can be created for $1,000. Most people, especially beginners, will fall into this category in terms of the type of broker they need.
Those who want a set-it-and-forget approach to investing but don’t have the money or time to hire a full-service broker can opt for a roboadvisor. These are algorithmic investment platforms that you can manage through an app or website at a fraction of the cost of a traditional financial advisor.
On the other hand, online/discount brokers do not provide any investment advice and are basically just order takers. They are much cheaper than full-service brokers because there is usually no office to visit and no certified investment advisors to assist you. The cost is usually based on a per transaction basis and you can usually open an account online with little down payment. Once you have an account with an online broker, you can usually log into their website and your account and be able to buy and sell stocks instantly.
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Remember that since these types of brokers absolutely do not give you investment advice, stock tips or any kind of investment assistance, you manage your investments independently. The only help you usually get is technical support. Online (discount) brokers offer investment-related links, research and resources that you may find useful. If you feel you are knowledgeable enough to take on the responsibility of managing your own investments, or if you don’t know anything about investing but want to teach yourself, then this is the way to go.
The bottom line is that your choice of broker should be based on your individual needs. Full service brokers are great for those willing to pay a premium for someone else to take care of their finances. Online/discount brokers, on the other hand, are great for people who have little start-up money and want to take on the risks and rewards of investing without any professional help.
Sometimes, companies (often blue chip firms) sponsor a special type of program called a Direct Stock Purchase Plan (DSPP). DSPPs were originally conceived generations ago as a way for businesses to allow small investors to buy property directly from the company. Participation in the DSPP requires the investor to deal directly with the company and not with a broker, but every company’s system for administering the DSPP is unique.
Participating companies will offer their DSPP through transfer agents or other third-party administrators. To learn more about how to participate in the Company’s DSPP, an Investor should contact the Company’s Investor Relations Department.
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Once you’ve chosen your brokerage platform, you’ll need to create and fund an account before you can start trading. Today, it’s easier than ever to connect a bank account online and transfer funds, or electronically transfer an existing brokerage account to another firm. You can also choose to make recurring deposits into your brokerage account to grow your portfolio on a regular basis.
Once funded, you just need to go online or call your broker to place the trade. Stocks are denoted by a unique ticker symbol, a one to four hundred mnemonic assigned to a particular company. e.g.
When you select the stocks you want to trade, you will be presented with a quote, information about the stock’s price and activity. This will show you the last price at which the stock traded, as well as the bid and offer. The bid is the highest price at which someone in the market will buy the stock (and is therefore the best price you can sell it to them at). The bid, or ask, is the lowest price at which someone in the market is willing to sell (and thus the best price you can buy from them). The difference between the bid and offer prices is known as the spread. A narrower spread usually indicates that the stock market is quite active and liquid. A wider spread suggests the opposite. After reviewing the price, you can place your order.
Market orders are the most basic type of order and give you immediate execution at the prevailing market price. A limit order, on the other hand, allows you to set a specific price at which to buy or sell. If the price never reaches this limit level, then the trade will remain active until it is cancelled. Many of these trades are intraday orders that will be good until the end of the trading day. If you want the order to be active only briefly, you can instead indicate to your broker that it is immediate or canceled (IOC). Alternatively, if you want the order to remain valid for more than one day, then you can set it to be Good Until Canceled (GTC). Other conditions can also be placed on the order, such as a stop-loss.
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After completing your trade (in whole or in part), you will receive a fill – a summary of your order details.
You must be at least 18 years old in the United States to open a brokerage account and trade stocks. For someone under 18, a parent can create a guardianship account on their behalf.
Yes. Several online brokerage platforms (such as Robinhood) offer commission-free trading in most stocks and exchange-traded funds (ETFs). Note that these brokers still make money from your trades, but by selling order flow to financial firms and lending your stock to short sellers.
The easiest way to trade is to open and fund an online account and place a market order. Although this is the fastest way to buy stocks, it may not always be the wisest. Do your own research before deciding what type to order and with whom.
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Usually, you need to open an account with a broker to buy and sell stocks online. However, some publicly traded companies offer direct purchase of shares
