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What Should You Look For When Choosing A Stock Brokerage Firm?

wall street
June 25th, 2014

When you look at how much your money earns when you put it in a savings account and then check the annual inflation rate, you will realize that essentially you are losing money every year. Or, to put it kindly, you are paying for the privilege of making sure that you don’t ever lose the money you’ve squirreled away for a rainy day. Your savings account, after all, is insured for up to $250,000.

But for many of us, a savings account simply won’t cut it, and it makes much more sense to invest the money in stocks instead. There’s a risk, of course, but then the reward is much greater. This decision then brings us to another question: How do you pick a stock brokerage firm?

Here are some things you need to look for:

  1. Reputation. Stock brokerage firms and stock brokers must be registered and licensed. You have to verify this, and then you can ask for references which you need to check out. Go online and check for reviews as well.
  2. Type of Service. Some firms are full service, which means they offer advice, recommendations, and even research material. Others are discount services, and they offer less services but for a smaller fee.
  3. Fees and Commissions. This can be a harrowing experience, because quite a number of stock brokerage firms have hidden fees that can bleed your profits dry. You have to understand how much you have to pay for maintaining your account, and how much commission a broker will charge for each transaction.
  4. Matching Your Financial Goals. Can your stock broker get in line with your goal? Some people want short term profits, while others prefer to look for long term growth. If you are in search of a steady income or a way to help save on taxes, your broker should be aware and comply with your objectives.
  5. Risk Tolerance. Since you know there’s a risk involved—you can literally lose all your money—you need to determine just how much risk you can tolerate. Some investments carry very little risk, but the reward may be negligible. Some investments can have a huge potential reward, but your risk may be magnified as well.
  6. Different types of accounts. You have to fully understand what kind of account you’re opening so that there’s no misunderstanding. For example, if you have a discretionary account, then you cannot be angry if your stock broker makes investment moves without consulting you. That’s what a discretionary account means.

If you have a margin account, then you can borrow money from the firm, but you have to fully understand the terms of that loan.

 7. How easy is it to get your money? Make sure you understand the entire process of withdrawing money from your account. Find out how much it will cost you, and what the limits are.

Picking a stock brokerage firm is like choosing a spouse. It needs to be the right fit, it can get complicated, and it can get you into a rewarding (or not) experience. So choose wisely!


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