Today, Business Insider posted an article by Mandi Woodruff titled "Online Brokerage Firms Aren't Right For Everyone." Though I agree with the general ideas mentioned in the article, I disagree with the notion that individuals shouldn't choose an online brokerage firm.
Mandi mentions the following reasons for why an individual investor should be wary:
- the number of available online brokerage firms and their offerings can be overwhelming for individual investors
- trading fees can eat away your profits with some accounts charging anywhere from $5 to $200 per trade
- some online brokerages charge inactivity fees
- some online brokerages charge hidden fees for transactions such as transferring your account to another firm
I couldn't agree more.
Discount online brokerage firms are a great way for the average (passive) individual investor to be active in the market without fees eating away at their profits.
I recommend that an individual investor consider the following 4 things before choosing a discount brokerage firm:
- Does the firm offer a robust mobile trading platform?
- Does the firm provide educational resources (how-to articles, company financial reports, streaming news, etc.)?
- What are your support options? Will there be someone to help when you need it?
- And last but not least, how long has the firm been in business?
Finding a company that has a positive response to these questions will help you avoid headaches down the road. I began investing with Scottrade ($7 per stock trade), then moved to SogoTrade ($3 per stock trade), and am currently with a platform I truly love - OptionsHouse ($3.95 per stock trade).
As Susan rightly states, the point of picking an online discount brokerage firm is "to help you save money - not waste more of it with unnecessary fees."

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