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making my own decisions regarding my money.
The point is this control your own money in all aspects. This means that even if you do hire
a professional to help you, you are still responsible for ensuring that the person you choose is
effectively doing exactly what you hired him or her to accomplish. Make sure then, that you
periodically reevaluate their performance. Don't get sidetracked by things like emotion or
friendship. As with any professionals, if they are not cutting the mustard, get rid of them and
hire someone better.
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Discount Stockbrokers
In 1975, standardized brokerage prices were abolished by the gov- ernment. Prior to that
time, buying a share of stock cost the same regardless of where it was purchased. The
change in the law meant that brokers and brokerages were left to their own devices to
determine how much their services were worth, and investors were finally free to decide how
much they were willing to pay. That, coupled with the proliferation of information via the
media and Internet along with the explosive growth of individual investors (we do talk
amongst ourselves after all), led to the introduction of a whole new breed of brokerage, the
discount brokerage.
Discount brokers all have one thing in common: You pay for what you get. In the world of full
service brokers, investors are usually charged the same price regardless of how many of the
brokerage's services they utilize. Most discount brokerages have a price structure broken
down like a menu. If you want advice, it costs a dollar. You want to place your trade in
person? That costs another dollar. The benefit to this, of course, is that if you already know
which stock you want to buy, you will pay much less to simply place the purchase order than
the investor who wants to sit with the broker for three hours discussing his or her options.
Plain English
A discount broker provides his or her services piecemeal or à la carte. Discount
broker clients are usually charged only for the services they use.
In addition, discount brokerages are no longer the renegade firms of Wall Street. The full
service brokerages learned quickly that in the evolving world of finance they either adapted
their price structure or died. That being the case, almost all of the full service brokerages
introduced discount brokerage services within their own firm or in a subsidiary. Investors are
now free to have their cake and eat it, too: With this setup, when you need full service, you
get it (and you pay for it, too); and when you simply need an action (such as buying or selling
a share of stock), you get that, too.
You can find discount brokers advertised in any of the places you find full service
brokers Appendix B, the financial pages of your local newspaper, and so on. When
contacting the brokerage firms, most will tell you up front what services and plans they offer
(much like checking and savings accounts at your local bank) and you would then choose
those services or plans that most appeal to you.
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E-Brokers
The growth of the Internet threw a new star into the ring: the e-brokerage. These include
companies like Ameritech, LBJ Direct, and E-Trade. Many of these electronic brokerages
have grown to massive sizes in their few years of existence, verifying their popularity. The e-
brokerages have many things going for them, not the least of which is their prices.
Plain English
E-brokers are completely licensed to provide all the services of a traditional
brokerage online. E-brokerages accept trades 24 per day, 7 days per week, Be
aware, however, that the order is usually retained until the physical markets open.
Because e-brokerages are virtual firms, they have little or no overhead. They have no need
for expensive items such as prestigious office buildings. Since they send their quarterly
statements via e-mail, they save money on paper and printing costs. With orders being sent
in electronically, staff costs are minimal. As a result, the cost for a basic purchase or sale of
stock can be as low as $7. That's almost a tenth of the $75 cost of the full service broker
price mentioned earlier. Warning bells are going off in your head. "There must be a catch,"
you say. Depending on what kind of investor you want to become, there might be. However,
most of the loopholes have already been addressed directly.
For example, investors who want information on stocks, trends, market happenings, etc., will
find it supplied in the electronic library of the e-brokerage. Unlike full service and discount
brokerages, they provide it free of cost. Daily stock and market updates are also available
online, as are advice and answers to specific questions from investors. Again, all of these
services are available online, and they're free. The investor is, of course, charged with the
responsibility of doing the footwork, researching the stock and reading up on market
trends something many, many investors simply don't like doing.
Should you have a problem or dislike typing in the order and want to speak to a live person,
that service is also available. However, be aware that there is usually an extra charge for that
service, and you run the risk of looking very 1980s.
E-brokerages have come along last in the line of brokerage services. Thus they have had
ample opportunity to see what the average investor wanted in a brokerage and adapted
brilliantly to fill those needs. The biggest disadvantage of the e-broker is also its greatest
appeal. The investor is directly responsible for the decisions concerning his or her own
money and investments.
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Educate Yourself
The irony of the brokers and brokerage houses is that they create the need for an investor to
educate him- or herself further regarding money management. This is a good thing.
Depending on what type of brokerage service you select, minimum or maximum, you as the
investor are ultimately responsible for ensuring your money is being effectively managed and
you are being appropriately charged. Whether that means researching the trade yourself or
researching the returns from your professional's advice, you make the call. This is your hard-
earned cash make sure you know where every dime of it is going.
The 30-Second Recap
Full service brokers have passed the Series 7 exam and are therefore licensed to
provide all investment services. Full service brokers are usually very hands on,
managing their clients' accounts directly, and charge the highest fees.
Discount brokers provide investment services piecemeal or à la carte, as preferred by
the client. Discount broker clients are usually charged only for the services they use,
generally less than full service brokers.
E-brokers provide all investment services online. Additional services are also usually
available on the telephone or through a live broker, although additional fees usually
apply. E-brokers generally charge the least of the various brokers.
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Lesson 9. Opening a Brokerage Account
In this lesson you will learn about the various types of brokerage accounts that are available
and the differences in how they operate.
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Getting Started
Opening a brokerage account is a relatively simple procedure. On average, most brokerage
firms will open an account for about $2,500. However, as this is an average, the initial
amount may vary. Many brokerages offer accounts at various levels with a number of
enticements to make the investor open the account with as much money as possible. Open
an account at $10,000 and you get a toaster. Open an account with $100,000 and someone
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