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Online Investing
Who
are you going to call? When it's time to trade should you
call your human broker or let your computer modem dial an
online broker? What are the pros and cons of each trading
method? If you call a broker you may get advice with your
phone call, but most brokers aren't trained analysts, so their
advice may not be the best. Brokers are only human and they
can only talk to one client at a time, they get sick, go to
lunch, and take vacations, thus they may not always be available.
On heavy trading days it may be next to impossible to place
an order with your broker or a member of his staff. Granted,
the web sites of online brokers aren't always available, but
increased redundancy and increased capacity for heavy trading
days has almost eliminated the problems. Brokers may be
able to answer your tax questions or questions on other topics,
but an online trader can find these same answers at their
local bookstore and save money on their trades. Many online
brokers are adding glossaries to their sites and even have
"Investor University" sections on their web sites.
A select few full service brokers will trade the research
received from Stock Traders Press for you. They will watch
the stocks, and can even act for you in a discretionary account,
i.e. routinely buying 1,000 shares of each Spotlight Stock.
Most brokers you deal with don't have our research in hand
and can actually stifle your efforts to following the research.
Price is a big distinction between
human brokers and online brokers. Few human brokers will make
your trade for even $50, but many online brokers will make
a trade for $30, and even as little as $8. Some human brokers
rake their clients over the coals and charge them hundreds,
if not thousands of dollars per trade. You have to be careful
when you compare brokers based on price. There is some truth
in the cliché, "you get what you pay for".
Some online brokers provide low prices and non-existent
service. On the low end you'll find overloaded sites that
can't handle volume on heavy trading days, customer service
lines where the wait is measured in hours, and slow trades
that cost you profits on every trade you make. On the other
side of the coin are the online trading departments of some
"discount" brokers where you'll still pay a $25
or $30 minimum charge per trade. The commission rate most
online brokers advertise is for a market order, not the limit
orders most short-term traders prefer to use. For limit orders,
the broker advertising $7 commissions may charge you $15 or
more on every trade. The best way to compare rates is to compare
the cost of what for you is a typical trade. A broker whose
fees make sense to an investor who trades 200 shares may not
make sense to a trader who places 5,000 share orders.
Customer service varies from broker
to broker and is worth checking out before you fund your account.
Some extra low price brokers may not have a customer service
department you can talk with. If you want something you send
them an email and wait days for a reply. A human broker will
give you an actual call when your margin account needs additional
funds, where many online brokers send you an email informing
you your position has already been liquidated. The rules for
making deposits to your account again need to be reviewed
before you open an account. Some online brokers have retail
offices you can drive to and deposit funds in person. Most
brokers accept wire transfers but your bank may charge you
a steep fee on every transaction. We heard of one broker who
will give you immediate credit for your personal check when
you're opening your account, but then holds personal checks
for 10 business days when you later want to add funds to your
account. If the market is making a move, make sure you understand
what it takes to get money into your account so you're not
left on the sideline.
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