Discount Broker

How to Choose a Discount Broker

How to choose a Discount Stock Broker doesn’t have to be complicated… so I though I’d share with you my top 10 tips that can help you pick a Discount Stock Broker that’s right for you. But first you may be asking, “What is a Discount Stock Broker?”

The label “Discount Stock Broker” is designed to distinguish these brokers from the traditional “full-service” broker that would provide advice, execute buy and sell orders, and manage your investment portfolio, all for a fee. Here’s a simple comparison.

The Full-Serve Broker:

Provides advice with recommendations to act upon tailored to the individual client.
Often will meet with your personally and “tailor” an investment plan for you.
Offers a full range of investment products.
Tailors investing with tax planning to optimize your wealth.
Charge a premium for their time and advice (varies in price, but often $100 – $250 per transaction).

The Discount Broker:

Provides options rather than advice, without specific recommendations for the individual client.
Presents resources for individuals to use to design their own investment plan.
It used to be that discount brokers provided limited investment products, but today, you can find the same products offered by full-serve brokers.
Offers ideas related to tax planning, but does not provide the kind of seamless planning to optimize your wealth.
Charge a discounted rate based on the number of transactions the individual does (often $5 – $30 per transaction).

It used to be that you needed a “full-service” broker in order to be able to participate in the stock market… and only wealthy people, with large amounts of investment capital, could afford a “full-service” broker. The internet has revolutionized the accessibility of the average person to brokers. More investors are taking control of their finances, which includes their investment capital, whether it be in their cash accounts or rsp and 401k accounts. Now the question has become, how do you choose a discount brokerage?


10 Tips to Help You Choose the Right Discount Broker 

Cost – Not only the cost of a trade, but also the hidden fees such as termination fees, self-directed rsp or 401k fees, exchange fees, inactivity fees, and minimum balance fees. Some brokers use commissions per share or per trade, or both! The more money you save, the more profits in your pockets…But cost is not everything as we’ll see.
Minimum Requirements – It’s not uncommon for a discount broker to have a minimum assets requirement in order to receive the lowest trading commissions (i.e. $50,000 holdings to qualify for the $5 trades… anything below the $50,000 may result in a $29 trading fee or service fee).
Customer Service – This includes things such as call wait times, whether you can reach a real person 24-7, if your tax documents come in an easy to understand format and online, if there are online resources to help you understand the terminology and where to find the services you’re looking for, etc. Of course, customer service is individualistic… but you’ll quickly discover how good it is or is not.
Technical Tools & Alerts – I like to be able to stay on the site and look up various technical alerts… but I also like to be able to set alerts too. So, for example, if you want to know when a stock has unusually high volume, or trades above or below a certain price point, you can have your online broker automatically email you when it meets your criteria.
Expert Articles and Education – Market intelligence, news, research reports and other resources can assist you with making informed decisions.
Real-time data – Including your account information (some brokers are delayed), real-time quotes, and other up-to-the-second information that may be important as you invest. Of course, if you’re only investing at the conclusion of every day or week, not throughout the day, this may become less of a priority for you.
Markets – This may sound obvious, but ensure the broker you use offers trading in the markets and exchanges you want to trade. For example, if you’re wanting to trade in a foreign stock, you’ll want to ensure the broker offers that service.
Security – Look for a security guarantee and ensure you will receive 100% reimbursement should losses occur resulted from unauthorized online activity in your account. Often, the best security will be offered by the recognizable names that do more than merely offer a discount brokerage.
Trade Execution Quality – Basically this has to do with you getting the price you requested… when you request it. Most online brokerages offer sub-second trading and intelligent routing… but beware. Some brokerages, depending on the type of order, may have to manually enter the trade, slowing down its execution which may mean you get into a stock at a much higher price than you ordered or get out at a much lower price than you expected. It can add up to $100s of dollars!
Website – This really comes down to an ease of use issue… easy to navigate, useful information, access to research and tools, quick loading pages, appealing layout, etc. all add to your trading experience.

My Choice of Discount Brokers

I’ll share my top two choices in Canada and the US for discount brokers soon… but for now, I simply want to present this information without any bias on my part. Many people end up using a brokerage associated to their financial institution in Canada… while in the US, big names that advertise a lot tend to get the attention. Either way, ultimately, it is important to realize that a broker is a salesperson and a discount broker is a sales department. They either directly influence you to make certain investment decisions or they facilitate your transactions for a fee (or both).

How to choose a discount broker begins by understanding your own needs and then, after you’ve reviewed the top 10 tips for choosing a discount broker, compare a few to see what suites your needs best.

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