Depending on the type of investing
that you plan to do, you may need to hire a broker to handle your
investments for you. Brokers work for brokerage houses and have
the ability to buy and sell stock on the stock exchange. You may
wonder if you really need a broker. The answer is yes. If you
intend to buy or sell stocks on the stock exchange, you must have
a broker.
Stockbrokers are required to pass two different tests in order to
obtain their license. These tests are very difficult, and most
brokers have a background in business or finance, with a Bachelors
or Masters Degree.
It is very important to understand the difference between a broker
and a stock market analyst. An analyst literally analyzes the
stock market, and predicts what it will or will not do, or how
specific stocks will perform. A stock broker is only there to
follow your instructions to either buy or sell stock… not to
analyze stocks.
Brokers earn their money from commissions on sales in most cases.
When you instruct your broker to buy or sell a stock, they earn a
set percentage of the transaction. Many brokers charge a flat ‘per
transaction’ fee.
There are two types of brokers: Full service brokers and discount
brokers. Full service brokers can usually offer more types of
investments, may provide you with investment advice, and is
usually paid in commissions.
Discount brokers typically do not offer any advice and do no
research – they just do as you ask them to do, without all of the
bells and whistles.
So, the biggest decision you must make when it come to brokers is
whether you want a full service broker or a discount broker.
If you are new to investing, you may need to go with a full
service broker to ensure that you are making wise investments.
They can offer you the skill that you lack at this point. However,
if you are already knowledgeable about the stock market, all you
really need is a discount broker to make your trades for you.
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