How to Compare Brokerage Accounts

By: douglas kanyi(daggy86)

Anyone looking to start buying or selling stocks, bonds and mutual funds through professionals must have a brokerage account. Not all brokerage accounts are the same. A standard retail brokerage account differs from others such as discount brokerage accounts in trading and security processing.

Some of the financial providers specialize in provision of brokerage accounts for one plan only. This means you have to compare brokerage accounts before making your decision. Comparing such accounts is done on the basis of fund offerings, fees, investment options and technological resources.

What you need

Before you start comparing the services offered by different brokers you should consider the;

• Funding
• Expected market activity
• Initial investment

Instructions

Understand various terms used in relation to brokerage accounts.  For instance a broker dealer firm is the one that takes orders from the clients to buy and sell investments for them. Discount brokers take orders from the clients without providing them any advice regarding their investment choice. Ordinary brokers will compile your personal data and then recommend a specific investment option.

Understand different types of accounts on offer. The cash account which is the most basic form of brokerage account allows you to deposit cash into the account for the sole purpose of buying investments. In case you don’t use the cash for investment it will earn money market interest rates. The margin account allows the client to borrow against the balance in the account to buy investments. Discretionary brokerage accounts allow the broker to invest your money at his or her own discretion. This happens without providing any notice to the client.

Examine your financial needs. This means whether you want to buy investments on a long-term or short-term basis. In case of short term investments, the discretionary account can be superior compared to the other accounts because it will allow your advisor to secure investments instantly hence gaining you maximum benefits in a short while.

Examine you current skills and experience with regard to investing in the stock market. For those who are experienced and do not need the invested amount to fund daily expenses discount brokerage accounts are better compared to traditional one since they charge minimal fees. For those who are less experienced or those who lack the needed time for research, a traditional brokerage account is a better choice.

Compare similar brokerage accounts offered by different brokers. For this you will be checking the minimum opening investment. This usually varies from $500 to $1,000. You will also be considering the commissions charged by each broker. Finally you should check which broker’s account allows you to invest in mutual funds and which ones don’t.

If you think a discretionary brokerage account is the best choice for your investment needs, you should only go for well established money managers who have built considerable trust. Remember, this account will cost you more due to the advantage it gives you.  Once you have decided to use the services of a broker its good to be on the lookout for warning signs that the brokerage firm could be facing problems. This will protect you from any chance of incurring losses.

About the Author

Douglas is freelance content provider based in kenya.

(ArticlesBase SC #2431412)

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