If you are playing the stock market, keep in mind that if you truly want to walk away with more money than when you started, you need to pay attention to your costs. This might sound weird or even crazy. After all, you and most other investors have probably heard that when trading in the market, people should focus on picking the right stocks and getting in and out at just the right time. Everything else, according to this line of advice, is not as important. If you follow conventional wisdom about trading fees, you would join the ranks of many traders who see a significant chunk of their earnings go to trading fees. Why? Depending on your investing style and how you play the market, you might rack up quite a bit of trading fees as you take up positions, sell them, and take on new positions. In fact, for momentum traders, trading fees can burn a hole through their bottom line since momentum traders trade many times in any given day. Similarly, day traders can get in and out of a position many times in the span of a week. If you don’t pay attention to your trading fees, these fees might eat into your profits. Think about it-you worked hard to rack up some solid returns and it truly is a waste of time and effort to see a large chunk of your hard-earned cash wasted in the form of fees.
Thanks to the rise of Internet-based trading, the average cost of stock trading has dropped tremendously. There are lots of discount online trading services on the market. There is a bidding war for your business and this is definitely a great thing from a cost perspective. The downside, of course, is that you don’t get any advice or value-added services bundled in with these discount brokerage services. They only make sure your order to buy or sell stocks goes through quickly and accurately. The good news is that if you are in need of these cheap trading services, you probably already know what you’ll be trading. You probably already know what you’re doing. Make no mistake about it-low cost discount stock brokers aren’t for amateur stock investors or people who need their hand held through the investment process. While discount brokers are the cheapest practical stock brokerage options out there, there are cheaper methods available. However, they might no necessarily apply to your situation.
The cheapest methods to buy stocks may not apply to you
The cheapest way to buy stocks is to buy it through your employer. There are many downsides to this. First of all, most people don’t work for companies that sell their own company stock to employees in the form of payroll deductions. Moreover, not all public companies have such programs. Finally, such programs only offer the company’s stock to the employees of the company. It is no surprise that only a very few people qualify for this way of buying stocks. Still, if you want to save money on broker fees, this is definitely, hands down, the cheapest way to buy stocks. If you are like most other members of the general public, your best bet in buying stocks the cheapest way possible is to use a discount broker.
How to Pick the best discount broker
There are so many discount brokers being advertised on the Internet and on cable TV finance shows that it can be very confusing as to which service to go with. Don’t be confused. Choosing the right broker actually is easier than you think. The first step to making the right choice is to understand that ‘the best’ doesn’t really exist. What is ‘best’ for one person might be flat out wrong for another person. Instead of focusing on ‘the best,’ focus on what’s right for your particular situation and needs. Pick the right discount broker for your needs. Viewed from this perspective, many traders realize that the ‘best’ broker might not necessarily be the cheapest. There might be other factors like speed of execution or wide market coverage that makes them gravitate towards one particular broker over several others.
To find out what makes the most sense in your particular trading situation, keep the following factors in mind.
Ease of access
How easy is it to access the broker’s trading platform? Most discount traders have an online platform and this might lead you to think ‘once you’ve seen one online trading platform, you’ve seen them all.’ You’d be absolutely mistaken if you think this way. Sure, many online traders use online interfaces and they seem to use the same processes but that’s where the similarities end. You need to look under the hood of these outfits and see how fast, how secure, and how redundant their systems are. In short, how easily can you access and use these platforms? Not all platforms are reliable. Not all provide lightning quick executions.
Look beyond the cheapest fees to buy stocks: Security and Speed
If you need a short summary of the two biggest factors that separate solid online brokers from their competitors, you need to look past the cheap fees. Sure, many online platforms can offer cheap fees, but what separates them is security and speed. Really solid online trading platforms offer top notch security and lightning fast executions. The latter is particularly crucial if you are doing momentum trading. With momentum trading, you need to get in and out of stock positions at just the right time so you can scoop up small movements in share prices that translate to a decent profit or a sizable loss. This is why speed is essential. You don’t want to miss an opportunity or get caught in a position in a downtrend.
While looking for the cheapest online broker is important, you need to make sure you add a few more considerations to your search. Don’t just go for the cheapest trading service. Make sure you also factor in security and speed of execution. These factors give you peace of mind as well as position you to possibly make money in the fast-paced world of stock trading.