Tips for Dealing with Online Brokerage Firms

The internet has revolutionized our lives in a seemingly endless number of ways, and one of the most profound changes has come in the field of financial planning and financial services. While in the past buying and selling stocks required a phone call to a broker, and commissions often in the $50 to $100 range, the rise in online brokerage firms has served to lower the cost of buying and selling stock by as much as 90%. This radically lowered cost structure has allowed more people than ever before to manage their own portfolios and join in the excellent long term returns of the stock market.

Of course online brokers have not made it any easier to find winning stocks, and holders of accounts at discount and online brokers typically give up the expert advice provided at the full service brokerage firms. For those who are comfortable at making their own financial decisions, however, opening an account at a low cost online brokerage firm certainly makes a lot of sense.

There are a number of things to keep in mind when considering a online brokerage firm, and those tips are the focus of this article.

  • Pay attention to the cost structure of the online brokerage, not just the cost to buy and sell stock. Many online brokerage firms charge account maintenance fees, wire transfer fees, and other charges. These small fees can really add up, especially for small accounts. Be sure to read all the small print, and not get hung up simply on the cost of trading.
  • Know what kind of investor you are when you shop. If you are an active investor, you may want to choose an online brokerage based on low trading costs. On the other hand, if you trade less often, you may want to pay closer attention to ongoing fees and expenses to hold the account.
  • It pays to be a big fish. It should come as no surprise that all brokerage firms, online and brick and mortar firms alike, cater to their wealthiest and most profitable account holders, often to the detriment of those with less cash to invest. Many online brokerages are instituting tiered fee structures, with high value account holders eligible for perks like free wire transfers and no cost tax planning.
  • For this reason, if you have several smaller accounts at several different brokerage firms, it may make sense to consolidate those accounts under one roof to take advantage of the perks given to large account holders.
  • Pay close attention to security. When creating a password for your online brokerage account, be sure to use a strong password. Avoid easily guessed passwords like the names of relatives or pets. Also avoid using your Social Security number, birth date or other easily guessed passwords. If you feel that someone has gained access to your account, be sure to notify the brokerage firm immediately.

There is no doubt that online brokerage firms are hear to stay. The cost advantages of the internet provide significant cost savings and advantages to all types of investors, so it pays to explore a relationship with one of the quality online brokerage firms.



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