Do You Need A Broker?

Home Main Index Products Related WOW Websites

Bookmark This Page

Do You Need A Broker?

The question in the title is misleading. Most individuals have no choice whether to use a broker, since they're not members of an exchange. Those members (their employees, really) are the only ones who can actually execute a trade and they don't take calls from individual investors.

They're called Floor brokers and they're the one's who actually buy and sell securities on the floor of a securities exchange. You can watch them on TV waving their hands vigorously and yelling at one another.

So the question really should be: "What Kind of Broker Do You Need?"

Prior to 1975, Full-Service brokers were about the only choice. Then the world gave birth to discount brokers and life changed. In the 1990s, it changed again with the beginnings of Internet trading for average investors. Note that trading over networks had already been going on between large investors for decades.

Along with the changes in technology, making trades as easy as a few mouse clicks, came changes in the kind, amount and availability of research. Now any investor could, sometimes for free but rarely for more than a modest fee, get up-to-the-minute information about a company's earnings per share, historical profits and dividends, along with a bewildering array of more technical data.

Those two facts - technology and research - are the basis for deciding what kind of broker you need.

Some are comfortable with executing trades by making those few mouse clicks, others want some human contact - even if nothing more than an efficient-sounding voice - before plunking down a few thousand.

Full-Service brokers, if you find not only the right company but that special individual, can provide you with more than an efficient-sounding voice. Good brokers, and they do exist, offer their clients sound advice based on good research.

No one can predict with certainty any particular price for any stock five hours from now, nor five years from now. But massive statistical studies are undertaken and research analysts do conduct and study them then pass on their recommendations to brokers.

When those brokers are astute they can make reasonable judgments about the likelihood that long rock-solid Acme, Inc will fold in three months, or that newcomer Whizzard Techno-Babble is about to skyrocket.

If that kind of advice and 'partnering' is worth the commissions you'll pay, then a Full-Service broker is for you - especially if you have neither the time nor the temperament to undertake that research yourself.

Others, with more time or analytical interests - or perhaps, just more chutzpah - may find it not only financially worthwhile, but intellectually and emotionally satisfying to take the reins themselves. This is especially true for short-term traders, day traders even more so.

To these types, research isn't a burden or a bafflement it's an adventure. And the deep discount brokers, or pure Internet trading accounts, are the perfect fit for them. Reports, some free others available at varying cost, can be had in greater abundance than even they have time or desire to study.

So, along with determining how much money can be saved by using the broker behind Door #1 vs Door #2, study yourself and decide which kind of trader you are. That's the best way to choose which kind of broker you need.