Depending on the type of investing that you plan to do, you
may need to hire a broker to handle your investments for you. Brokers work for
brokerage houses and have the ability to buy and sell stock on the stock
exchange. You may wonder if you really need a broker. The answer is yes. If you
intend to buy or sell stocks on the stock exchange, you must have a broker.
Stockbrokers are required to pass two different tests in
order to obtain their license. These tests are very difficult, and most brokers
have a background in business or finance, with a Bachelors or Masters Degree.
It is very important to understand the difference between a
broker and a stock market analyst. An analyst literally analyzes the stock
market, and predicts what it will or will not do, or how specific stocks will
perform. A stock broker is only there to follow your instructions to either buy
or sell stock… not to analyze stocks.
Brokers earn their money from commissions on sales in most
cases. When you instruct your broker to buy or sell a stock, they earn a set
percentage of the transaction. Many brokers charge a flat ‘per transaction’
fee.
There are two types of brokers: Full service brokers and
discount brokers. Full service brokers can usually offer more types of
investments, may provide you with investment advice, and is usually paid in
commissions.
Discount brokers typically do not offer any advice and do no
research – they just do as you ask them to do, without all of the bells and
whistles.
So, the biggest decision you must make when it come to
brokers is whether you want a full service broker or a discount broker.
If you are new to investing, you may need to go with a full
service broker to ensure that you are making wise investments. They can offer
you the skill that you lack at this point. However, if you are already
knowledgeable about the stock market, all you really need is a discount broker
to make your trades for you .
