A:

Understanding the costs associated with becoming a casual investor is important if you want to be successful. It is important to realize that there are tangible costs, such as commission and funding an account. Also, don't forget about the hidden costs, such as the time and effort. For most beginners, the first major obstacle to becoming a casual investor is the amount it takes to fund a trading account. There is no magic amount that is needed and this will vary depending on your personal situation.

Commission is the second cost, and probably the most important that must be understood before becoming a casual investor. It is important to choose the appropriate type of broker for your investing style. A full-service broker offers clients access to its research and are often willing to give clients advice based on their risk profiles. With this high level of service comes a higher commission fee. For traders who are looking to hold a position for the long run and don't want to get into the analysis on their own, a full-service broker may be the best decision.

On the other hand, a discount brokerage offers clients the ability to buy and sell various securities, but does not offer any form of advice. Cutting out the research is why these types of brokers are able to offer lower commission rates. In most cases, a casual investor who does not have a lot of starting capital will choose this type of broker because the commissions have less influence on positions. However, doing your own due diligence is very time consuming, and can be very stressful when the wrong decisions are made. These are costs that must be measured and for some people, this warrants a full-service broker.

For more on this topic, see Picking Your First Broker and The Successful Investment Journey.

RELATED FAQS
  1. What is a stock split? Why do stocks split?

    All publicly-traded companies have a set number of shares that are outstanding on the stock market. A stock split is a decision ... Read Full Answer >>
  2. Is there a difference between financial spread betting and arbitrage?

    Financial spread betting is a type of speculation that involves a highly leveraged derivative product, whereas arbitrage ... Read Full Answer >>
  3. How do I place an order to buy or sell shares?

    It is easy to get started buying and selling stocks, especially with the advancements in online trading since the turn of ... Read Full Answer >>
  4. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  5. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
  6. What is the difference between passive and active asset management?

    Asset management utilizes two main investment strategies that can be used to generate returns: active asset management and ... Read Full Answer >>
Related Articles
  1. Mutual Funds & ETFs

    3 Fixed Income ETFs in the Biotech Sector

    Learn about the top biotechnology ETFs, such as the SPDR S&P Biotech ETF, the First Trust NYSE Arca Biotech ETF and the iShares Nasdaq Biotech ETF.
  2. Stock Analysis

    4 Reasons Intercept Pharmaceuticals Should Be on Your Radar

    Learn about Intercept Pharmaceuticals and what type of biopharmaceuticals it seeks to create. Understand four reasons why the company is a good investment.
  3. Investing

    Looking To Begin Trading In The Stock Market?

    If you are a new trader, we explain the differences between penny stocks and options so you can make the best decision for your personal trade plan.
  4. Mutual Funds & ETFs

    ETF Analysis: United States Natural Gas Fund LP

    Find out more about the United States Natural Gas exchange-traded fund, the characteristics of the ETF and the suitability and recommendations of it.
  5. Mutual Funds & ETFs

    ETF Analysis: United States Oil Fund

    Find out more about the United States Oil Fund, the characteristics of USO, and the suitability and recommendations of the ETF for investors.
  6. Mutual Funds & ETFs

    ETF Analysis: PowerShares DB Oil

    Find out more about the PowerShares DB Oil exchange-traded fund, the characteristics of the ETF and the suitability and recommendations for it.
  7. Mutual Funds & ETFs

    ETF Analysis: ProShares UltraShort Bloomberg Crude Oil

    Find out about the ProShares UltraShort Bloomberg Crude Oil ETF, the characteristics of the inverse ETF and the suitability and recommendations of it.
  8. Mutual Funds & ETFs

    3 Fixed-Income ETFs in the Silver Sector

    Find out about the top ETFs that track the silver sector, such as the iShares Silver Trust ETF, ETFS Physical Silver Shares ETF and ProShares Ultra Silver ETF.
  9. Stock Analysis

    If You Had Invested Right After Facebook's IPO

    Find out more about how much you would have made if you invested $1,000 into Facebook Incorporated right after its initial public offering.
  10. Active Trading Fundamentals

    If You Had Invested Right After Google's IPO

    Find out more about how much money you would have if you invested $1,000 in Google Incorporated right after its initial public offering date.
RELATED TERMS
  1. Bid Wanted

    An announcement by an investor who holds a security that he or ...
  2. Hindsight Bias

    A psychological phenomenon in which past events seem to be more ...
  3. Paper Trade

    Using simulated trading to practice buying and selling securities ...
  4. Financial Exposure

    The amount that one stands to lose in an investment. For example, ...
  5. Bid And Asked

    A two-way price quotation that indicates the best price at which ...
  6. Compound Net Annual Rate - CNAR

    The return on an investment after taking tax implications into ...

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!