Thanks to the rise of technology, more people than ever can invest in stocks. Before the Internet made things easier, only a relatively small amount of the population could afford to invest. This is because a broker is needed to help handle the transactions associated with investing. In order to have a broker a little more than a decade ago, you needed a large sum of money — and you needed to be willing to pay a somewhat steep commission. The rise of the Internet, though, has made the discount brokerage a sensible solution for anyone interested in investing.
What is a Discount Brokerage?
A discount brokerage is one that charges a lower commission for helping you place trades. You can buy and sell, but investment advice is not offered, as it is with a full-service (and full cost) broker. You choose your own investments, and your orders are carried out. Usually, you simply pay a flat fee per trade, simplifying the process, and often saving money in the long run.
Many discount brokerages do offer links to research so that you can learn more about your investments, but investment advice and direction is not part of the price. Some of these online brokerages do offer you the chance to speak with a broker and get investment advice, but such services usually cost an additional fee. Some of these brokers offer margin trading, as well as access to some riskier investments, but most discount brokerages just offer access to stocks, mutual funds and ETFs. Many online discount brokers can also help you set up an IRA for retirement investing.
Who Benefits from a Discount Brokerage
Those who benefit most from the best discount brokerages are those who do not have a lot of money to invest, and those who are interested in long-term dollar cost averaging. While some brokerages offer real time trading for an additional fee, many day traders find that other platforms serve their needs better.
Ordinary people with little to invest can take advantage of the opportunity for higher returns with the help of a discount brokerage. Initial deposits are generally lower than with full service brokerages. In some cases, if you invest in some sort of a fund, or a retirement account, you can start with as little as $50. It is also possible to invest smaller amounts of money. Some discount brokers will allow you to invest as little as $25 or $50 a month, provided you have it automatically withdrawn from a bank account. This makes it easy for investors to take advantage of dollar cost averaging by consistently investing money so that they increase their returns.
Easy Investing With Online Brokerages
Online discount brokers have made it easy and affordable for most people to begin investing. You do have to realize, though, that all investment carries risk, and that you could lose money when you use discount brokers. These are not banks, and your accounts are not FDIC insured. You can make sure that your preferred discount brokerage is a FINRA and SPIC member, in order to help ensure that best practices for brokers are followed.
Need to open an IRA? Here are review posts on your options as well as links to open an account: