I want to start buying stocks. Where do I start?

By Investopedia Staff AAA
A:

In order to buy stocks, you need the assistance of a stockbroker who is licensed to purchase securities on your behalf. However, before you go looking in telephone or online directories for your nearest broker-dealer, you need to figure out what type of stockbroker is right for you.

There are four basic categories of stockbrokers available today, ranging from cheap and simple order-takers to the more expensive brokers who provide full-service, in-depth financial analysis, advice and recommendations: online/discount brokers, discount brokers with assistance, full-service brokers or money managers.

Online/discount brokers are basically just order-takers and provide the least expensive way to start investing since there is typically no office to visit and no certified financial planners or advisors to help you. The only interaction with an online broker is over the phone or via the internet. Cost is usually based on a per transaction or per share basis, allowing you to open an account with relatively little money. An account with an online broker allows you to buy and sell stocks/options instantly with just a few clicks. Since these types of brokers provide absolutely no investment advice, stock tips or any type of investment recommendations, you're on your own. The only assistance you'll get is technical support for the online trading system. However, online brokers typically offer investment-related website links, research and resources but these are usually third-party providers. If you feel you are knowledgeable enough to take on the responsibilities of directing your own investments or if you want to learn how to invest without making a large financial commitment, this is the way to go.

Discount brokers with assistance are basically the same as online brokers, with the difference being that they're likely to charge a very small account fee to pay for the extra assistance. This assistance, however, is usually nothing more than just providing a bit more information and resources to help you with your investing. They can be the same companies as your basic online/discount brokers that offer upgradeable accounts or services. However, they stop short of giving you any sort of investment advice or recommendations. For example, they may offer more in-house research and reports or publish investment newsletters with investment tips.

Full-service brokers are the traditional stockbrokers who take the time to sit down with you and get to know you personally and financially. They look at factors such as: marital status, lifestyle, personality, risk tolerance, age (time horizon), income, assets, debts and more. Full-service brokers then work with you to develop a financial plan best suited to your investment goals and objectives. They can also assist with estate planning, tax advice, retirement planning, budgeting and any other type of financial advice, hence the term "full service". They can help you manage all of your financial needs now and for the rest of your life, if need be. These types of brokers are for those who want everything in one package. In terms of fees, they are more expensive than discount brokers but the value in having a professional financial advisor by your side can be well worth the additional costs - accounts usually can be set up with as little as $1,000.

Money managers are somewhat like financial advisors but may take full discretion over a client's account (hence the term "manager"). These highly skilled investment professionals usually handle very large portfolios of money and thus, charge hefty management fees based on the assets under management and not per transaction. They are basically for those with substantial incomes, who would rather pay someone to fully manage their investments while they're out playing golf. Minimum account holdings can range from $100,000 to $250,000 or more.

For those keen to learn what stock trading is all about without spending hundreds or thousands of dollars, you can sign up for a free Investopedia Simulator account. It is a simulated online broker account for users, who are given US$100,000 in pretend money, to practice investing strategies or to simply learn how to trade stocks and options in real companies in the stock market.

(For further reading, see our tutorial Brokers and Online Trading.)

RELATED FAQS

  1. What are the most common momentum oscillators used in options trading?

    Read about some of the most common technical momentum oscillators that options traders use, and learn why momentum is a critical ...
  2. How are Morning Star patterns interpreted by analysts and traders?

    Understand the elements of the morning star candlestick pattern and how this reversal signal is interpreted by traders and ...
  3. What are the best indicators to identify overbought and oversold stocks?

    Learn about the interpretation of the relative strength index and stochastics, two of the most popular indicators of overbought ...
  4. How effective is creating trade entries after spotting a Golden Cross pattern?

    Explore the components of the golden cross pattern for elements of effective trading strategy based on this pattern, including ...
RELATED TERMS
  1. Discretionary Investment Management

    A form of investment management in which buy and sell decisions ...
  2. Account Minimum

    The minimum balance required to be maintained in an investment ...
  3. Capital Growth

    The increase in value of an asset or investment over time. It ...
  4. Absolute Percentage Growth

    An increase in the value of an asset or account expressed in ...
  5. Compound Annual Growth Rate - CAGR

    The year-over-year growth rate of an investment over a specified ...
  6. Return On Investment - ROI

    A performance measure used to evaluate the efficiency of an investment ...

You May Also Like

Related Articles
  1. Economics

    Profiting From China's Breakout: The ...

  2. Investing Basics

    Online Portfolio Management, DIY or ...

  3. Options & Futures

    Stock Futures vs Stock Options

  4. Schwab may not be the first company to offer a robo-advisor, but it's sure to make a big splash. Here's what it'll look like.
    Professionals

    Robo-Adviser Wave Gets Big Push From ...

  5. A Monte Carlo simulation allows analysts and advisors to convert investment chances into choices. The advantage of Monte Carlo is its ability to factor in a range of values for various inputs.
    Fundamental Analysis

    What Can The Monte Carlo Simulation ...

Trading Center