How to Choose a Brokerage Account: Do’s, Don’ts, and Deciding What Type of Investor you Are

Last week I wrote an expose on the Top 10 Brokerage Accounts, now this week I will talk about how to chose the perfect brokerage account to fit your style of investing and trading. When it comes to choosing a brokerage service, I believe customer satisfaction and top ratings have to be near the top priority. With the internet vastly expanding, many people no longer need the ability to call a broker to invest and trade in stocks. Frankly anyone who still calls a broker and pays those excessive fees has to be crazy with the simple setup these sites have today. Two clicks now and I can make a trade, on my iPhone!!! Anyways, getting back to the point, customer satisfaction does play an imminent role in cashing out, making transfers, and the little day-by-day operations of running your investment portfolio. So now lets narrow down the options by first asking yourself a few basic questions:

How much do I have to Invest? The more you have, the more options you’ll have. Though I would advise for those of you with smaller portfolio values to take cheaper fee based brokerage services such as Zecco, Wells Fargo, TradeKing, and Scottrade.

What kind of investments do I want? Every brokerage will give you access to the most commonly traded stocks, but you won’t necessarily have access to thinly traded issues or every mutual fund on the planet. If you want access to IPOs, options trading, forex trading, etc… you need to choose either Interactive Brokers or OptionsXpress.

How often will I trade? Big question as if you are more of an investor rather than a trader then you might choose higher fees for more amenities.  For those of you only doing several trades a year, I would advise using any of the following: E*Trade, Charles Schwab, Fidelity or TD Ameritrade.

How much help do I need? Many discount brokers offer advice these days, yet some clearly stand out more than others. For advice on stocks, IRAs, ETFs, Mutual Funds, etc look at: Charles Schwab, Fidelity or TD Ameritrade.

How about top market research sites? If you are looking to do market research on your own or through other publications to not linked to your investment portfolio then thats no problem. These days the web is filled with quality investment sites which will help find you those hot stocks and narrow down your list of which stocks to buy. Unfortunately like any good quality product, the best sites will cost extra $$$. Here are my personal recommendations: Morningstar, Zachs, The Street, MarketWatch, Barron’s, and The Wall Street Journal. Many of these offer free 14-day trials, at least I know Mornigstar, Zachs, The Street, and Marketwatch do with no credit card down, all you need is valid email so take advantage of the trials to see if they can add value to your investment portfolio.

What type of Investor are you? 1) The small investor starting out with an investment portfolio of less than $5,000 looking to make money investing in stocks. 2) The buy and hold investor where you are too busy to follow the markets daily so you have a portfolio of stocks that doesn’t change much on a daily basis. 3) The avid trader who trades often trying to support himself with a full-time income by trading and investing in stocks within his investment portfolio.

So now that you have all your questions you are going to rush off and sign-up for your brokerage account, right? Well just read these 10 cautions first before you rush into anything. One word of wisdom I can say though is the younger you invest the better off you will be.

Here are 10 considerations as you begin your search:

1) Read the fine print on everything. Look for any hidden costs, such as account minimum balances, fees for late payments or bounced checks, transaction fees, and postage and handling fees.

2) Commission schedules vary depending on the trade. If you most typically buy 1,000 shares of stock for less than $10 a share, use this trade as a test of your prospective brokers. See how much of a commission you’d pay for your typical trade with each prospective brokerage and narrow down your selections.

3) Want to play with the big guys and trade options or penny stocks. Well make sure the brokerage is set up to trade them as most aren’t. Check on the ability to buy and sell stocks traded on international exchanges, too, if you’re planning to add foreign companies to your portfolio or dip into some forex trading.

4) The availability of checking accounts or bill-paying services may be very attractive to some. Discount brokers are expanding their banking services in an attempt to make the most from each customer. Do you really still need a checking account from a separate bank? Newest addition is Wells Fargo investments however which can links all accounts if you are a Wells Fargo customer. Worth looking at.

5) Do you want Mutual Funds? I am a huge opponent to Mutual Funds as they are underperforming and the fees they charge are absurd. Find an ETF with the exact same holdings and avoid the fees. However, for those of you who are fans of Mutual funds look at which funds are offered through your brokerage service.

6) Look at the margin interest rate. Margin trading can become very profitable and if you plan on ever borrowing money from your broker for purchases make sure you know what you will be paying. Margin rates vary substantially from broker to broker. Unless your experienced though, I would advise staying away from margin trading.

7) Check for money market sweeps which is where they sweep unused funds into money market accounts.

8) Look at where the nearest local branch is and what type of touch-tone trading/phone support is offered. If you are old school and want to place a trade the old-fashioned way  by phoning a human broker see if that’s offered. Plus find where the nearest branch is incase you want face to face communication and support.

9) Find out what Research and investing tools are offered. One of the perks of a brokerage account is getting access to additional screening tools, analyst research reports, stock charts, and more. The higher the commissions most likely the more that will be offered, remember though plenty of other private options like I mentioned above, best bets: Morningstar, Zachs, The Street, MarketWatch, Barron’s, and The Wall Street Journal.

10) Find the free perks that are offered. Lots can be worth having, I mean some brokerage services offer frequent-flyer miles, free trades on your birthday, or cash placed right into your account. If it doesn’t offer anything, call the branch and ask what they are willing to give you. With the downfall of the recession brokerage services are dyeing for new customers and might offer more than you think.

Overall, after reading this brief guide I believe you will be more than prepared to make the wise choice that fits to your needs and specialties. Good Luck and feel free to comment or send me an email ( on what brokerage service you have chosen.

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  3. James says:

    I hope all these steps can help you guys out. If you need more help, feel free to send me a email with more questions or post a comment and I will answer it ASAP.

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