By Rex Morris
This article will light your path by providing some insights on some of the important issues to consider before starting to trade online.
First and foremost you will need to open an account with one of the brokerage firms.
What are the factors you need to consider before you open up an account? Some of the criteria you might have to consider are:
* Account & Margin Requirements.
* Features & Services.
* Types of Products Offered.
* Commissions & Fees.
* Expertise & Reputation.
Account & Margin Requirements:
This feature varies from one broker to another. Some might require you to put down $500 while others might have a minimum deposit of $2000.
Margin requirements will also vary on the type of trading strategy you employ. Margin trading involves substantial risk and it is important that you become acquainted with your strategy before trading on margin. Most of the brokerage firms make you sign an agreement form stating that you understand the risks associated with margin trading. This contract agreement is to protect the brokerage firms to ensure that traders understand the implications of trading on margin. For example, a beginner might short a stock in an uptrending market and could risk his account.
Margins are usually calculated after the market closes. If you have an open position that has moved significantly against you, the brokerage firm may issue a "margin call" requiring you to deposit additional funds to maintain your position. If you are unable or unwilling to do so a part of your account will be liquidated to meet the call requirements.
Margin or No Margin, you should be able to open an account with the brokerage firms and still be able to trade stocks on the long and short side. Brokerage houses generally require you to put down big capital before they allow you to short stocks.
Margins are usually calculated after the market closes. If you have an open position that has moved significantly against you, the brokerage firm may issue a "margin call" requiring you to deposit additional funds to maintain your position. If you are unable or unwilling to do so a part of your account will be liquidated to meet the call requirements.
Features & Services:
The decision to choose a broker based on the service the provide will depend on your trading approach. If you require a personal service and attention you will probably want to go with "full-service brokerage". You will be assigned and individual broker who will personally handle your account. Minimum account requirements and commissions are higher for full-service brokerages that for discount brokerages.
But in contrast, if you prefer to be in-charge of your own trades or do not have the capital needed to meet the requirements of a full-service brokerage you will probably want to choose a "discount broker". These firms have zero to no-fees and lower commissions compared to full-service brokers. Internet brokerages are an example of discount brokers and will allow you to open an account and trade online over the internet.
You should also consider about the feature that are available and how they best fit your trading style. If you expect to trade less frequently, you will probably not be interested in real-time quotes. On the other hand if you expect to trade more frequently and need access to real-time quotes you will want a broker to provide that service either free of charge or minimal cost.
You might also want to consider services such as free checking, free money direct (ACH), bank wires, monthly statements, written or electronic confirmations etc.
Types of Products Offered:
Many traders would like to diversify their portfolios across different products such as bonds, stocks, cash, mutual funds, money market accounts, Individual Retirement Accounts (IRA's), Certificate of Deposits (CD's) etc. You might want to carefully consider the types of products offered by the brokerage firms.
Commissions & Fees:
One pays commissions when entering and exiting a trade. The commissions you pay vary depending on the brokerage firm. Some brokers might even negotiate the commissions based on the account activity and size.
When choosing a broker you should be aware of the fees they charge. Ask them if they have account maintenance fees, inactivity fees or any penalty charges for not maintaining minimum balances or for withdrawing funds.
Reputation:
The broker you opt for should fully understand your trading needs and have support staff that can handle difficult and complex transactions. Try to ascertain if the broker you selected has an established reputation for executing trades promptly and going an extra mile for its customers. These characteristics will enhance your trading experience and can lay the groundwork for negotiating reduced commission cost.
List of Brokers:
The list below provides you with some of the well know brokerage firms and their websites. This list is by no means a recommendation in any order.
* Charles Schwab
* E*Trade
* TD Ameritrade
* Scottrade
* Fidelity
Summary:
Selecting the right broker to meet your personal needs is a very important step in trading. Your process for selecting a brokerage firm should involve collecting information on several firms, determining your needs and what brokerage firm best meets those needs.
STI
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