Stock Exchange

How Does Choosing a Broker Relate to the Nickel? First off, we should make it clear that
we are not making any comment about Ameritrade. The "nickel" is important to many
investors (primarily traders), but it amounts to only a few dollars if you are buying
less than 100 shares. If you aren't an active trader, a nickel won't even show up on
the chart over the long term. So, worrying about "the nickel" when choosing a broker
matters only for particular types of investors. It's easy to see, then, that although
there may be many good brokerages out there, not all of them are geared to the
way you invest. Different investor personalities affect broker selection. The task
of making your selection may seem overwhelming at first, but with a little study
and some basic guidelines, you'll be able to make an informed decision suited to
your investing personality and end up with a broker that is right for you.
The Importance of Your Investing PersonalityYour investing style is one of the
biggest factors to consider when selecting an online broker. To determine your
style, you must define your needs. Here are some questions to help you do this:
Do you need personal advice, or can you do your own homework with research
reports?How long do you typically hold an investment?What is the size of trades
you typically make?How important is it to have direct access to a real person?
Is fast and efficient order execution absolutely necessary?There are four main
types of investor personalities. Try to determine what personality you resemble
most and ask yourself if your broker is providing the services that match your personality.Individual InvestorsThose classified under this category are also
known as
"retail investors". They don't require any special assistance or advisory services.
Individual investors empower themselves by doing their own research, selecting
their own stocks and knowing how to place online orders efficiently. The main
priorities for the independent investor are fast, consistent trade executions and
low commission levels. The fruit of such priorities and labor is the opportunity
to take advantage of the lowest commission rates around. Several brokers like
E*Trade and Ameritrade - known as "discount brokers" - have chosen to target
independent investors because this clientele makes up such a large and diverse
market.
Reliant InvestorsThese investors need some hand holding and assistance when
selecting a prospective investment. Typically, they require a broker capable of
offering individualized advice and assistance. This is especially true for new
investors, who may need all the help they can get when starting out. As you
can imagine, extra services equal higher commissions, and as more and more
investors become self-sufficient, brokers serving this market segment become
fewer and fewer. The ones that do stay around are generally larger companies,
such as Charles Schwab and Fidelity. Known as full-service brokers, they provide
many of the services necessary for successful investing: that is, not only picking
stock, but also tax planning, asset allocation and long-term planning. Additionally,
if you are a new investor with a fairly large amount of money, but you aren't
comfortable investing on your own, you may consider a wrap account. This type
of account charges one flat fee, usually quarterly, which covers all administrative,
commission and management expenses. The drawback is that wrap accounts
usually require minimum investments of between $50,000 and $100,000.
(For more on the wrap, see
Wrap It Up: The Vocabulary and Benefits of Managed Money.)
Short-Term Investors (Traders)Short-term traders are not the
same as day traders. Depending on the type of security, a short-term position
can range from an hour to a few months. For the most part, short-term trading
is a practice used primarily by the top financial players. These are the professionals
who have devoted time to understanding all aspects of trading and investment
and are often trading what are called "momentum stocks" or "
momo plays". Traders require access to superior research information,
excellent execution skills and most likely the ability to trade in other types of
securities, such as derivatives. With such experience and knowledge, short-term
traders require next to no assistance from a broker. Because these investors ar
e attempting to profit from the relatively short-term movements in a security's
price, they are more concerned about getting the best possible fill price than a
longer-term investor, but not as concerned as a day trader, as we explain below.
Discount online brokers supply the fast order execution, the low commissions and
the trading tools that are the biggest concerns of the short-term investor.