Discount brokers are all the rage with online traders and investors today. Deeply discounted rates on stock trades are the major attraction to traders. What do you need to know about discount brokers? The following article takes a closer look at discount brokers and offers several tips for choosing the best one.
Discount brokers are individuals or companies that carry out trade executions for a variety of trades with affordable trading charges. In other words, they buy and sell orders are executed with low commission rate than traditional brokerage firms.
Discount brokers can be categorized as discount stock brokers, discount commodity brokers, and discount real estate brokers. Discount stock brokers open endless opportunities for those interested in stock markets. Discount commodity brokers offer the best trading platforms whereas the discount real estate brokers are committed to provide online and offline services for property sales.
Moreover, there are two levels of discount brokers on the basis of commissions. They are standard discounters and deep discounters. The commission charged by a standard discounter is 50% less than full-service brokers. Deep discounters feature the lowest commission structure, which is 60 to 90% lower than full-service brokers.
Discount brokers offer a wide variety of services. They provide ‘no-load’ mutual funds, at a lower commission (around 0.5%). Most of them offer free mutual fund purchases through some special arrangements. All discount brokers execute stock and option trades. They trade on AMEX, NYSE, or NASDAX. They also offer free 1-page Standard & Poor’s Stock reports.
Touch-tone telephone stock quotes, free check-writing privileges, and dividend-reinvestment services are provided 24 hours a day. Some discount brokerage firms provide information on the current price of stock, volume of the day, current dividend and yield as well as earning forecasts free of cost.
To choose a discount broker, one should consider a couple of things. Cost must be the key factor. The fee schedule may vary depending upon the brokerage firm and the quality of shares handled by them. Always read the fine print and look for hidden costs including transaction fee, postage fee, and fees for late payments.
In most cases, discount brokers do not have local branch offices. So it is crucial to check the background and strategy of the discount broker before hiring one. Make sure that the discount broker is properly licensed and experienced. Stock forums and referrals can help the trader find a reliable discount broker.