Investors buy and sell stocks through brokers licensed to do business on markets such as the New York Stock Exchange or Nasdaq trading system. Brokers charge commissions or fees for their services, but not all charge the same rate, and most brokers offer varying levels of service for their work. There are full-service brokers, discount brokers and online brokers -- and some firms combine all three.
Paying for Every Trade
An investor usually pays a commission on any trade, whether it's an order to buy or to sell. An exception may be if the investor has an investment management arrangement that includes transaction fees. In that case, the investor will pay a flat fee to have the broker handle the account, including advice on what to buy or sell and when.
A full-service broker charges higher fees, but provides research and investment advice. Some require minimum balances to maintain a trading account. A discount broker simply makes trades as ordered; the investor is on his own to make investment choices and decisions. An online broker works through the Internet and may combine full service and discount options.
Online and Discount Brokers
Low-fee online brokers have changed the brokerage operation, typically advertising low fees, with a basic fee per trade regardless of value. The line between full service and discount has blurred, as traditional brokerage houses such as Merrill Lynch have added online and discount features, while discounters such as Schwab and Fidelity have expanded service offerings.
Full service broker commissions typically are a percentage of the value of a trade. Discounters range from $4 to $20 for a trade of 1,000 shares or less, regardless of value, and may offer a number of options with varying fees. Online broker fees range from $5 to $15 a trade. The Financial Industry Regulatory Authority (FINRA) says investors should weigh options carefully before choosing a broker.
Some brokers offer investors choices of fees. One, for instance, charges $7.95 for an online trade, $12.95 for one using an automated phone service and $32.95 for a representative-assisted transaction. Another firm charges $9.95 for online trades in accounts that have made more than 30 trades in 12 months, and $19.95 per trade for other accounts. However, it's $35 for automated phone trades and on a sliding percentage scale for representative-assisted trades.
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