| Question #6: Do I Need a Broker?Only brokers
can buy or sell securities. Brokers are the licensed intermediaries between you and the
market. Before 1975, the only type of stockbroker available was a full-service broker, and
all brokerages charged the same fees and commissions. Starting in 1975, brokerage firms
were allowed to compete with one another, and the discount broker was born. Discount
broker's commissions were typically 50 percent to 75 percent lower than those of
full-service brokers. The leading discount brokers were Fidelity, Charles Schwab, and
Waterhouse Securities.
With the Internet, deep-discount brokers have
come into existence. Deep-discount brokers (online brokerages) can handle any type of
basic transaction. These deep-discount brokers will likely complete 60 percent of all
trades in 1998. This has fueled a fierce price war. As of this writing, many reputable
online brokerages will handle your trade for $20 or less.
In summary, you have your choice of three types
of brokers:
* Deep-discount brokers: The least
expensive type of broker, these brokers offer no recommendations, and contacting a human
if an error occurs is often difficult.
* Discount brokers: Less expensive than
full-service brokerages, discount brokers offer no recommendations and minimum human
contact.
* Full-service broker: They charge full
commissions, but full-service brokers provide recommendations, advice, and personal
service.
Tip: You can locate a complete, alphabetical list of licensed
brokers at Gomez Advisors. |
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