How to Select Your Brokerage Account Intelligently

You see their advertisements constantly running on television. Stock brokers certainly seem to want your business. Especially eager are the brokerage houses who stand to make significant money off of you through high commissions and fees. You no doubt have realized by now that making money in the stock market is difficult enough. Forfeiting an appreciable portion of your hard earned trading profits to your broker constitutes an investing cardinal sin.

There are several things to review when deciding upon which broker best suits your needs. Will most of your trades be self directed? If so, paying high commissions to a full service broker is not a wise choice. Assuming you are one of today's legions of self directed investors, then a discount brokerage far better suits your needs.

Your broker makes money off you in several different ways. The most obvious one is through the commissions it charges for each trade you make. Believe it or not, there are actually brokers today willing to offer you a defined amount of free trades each month. This can be conditional upon either having stipulated balances in other deposit accounts outside of your brokerage account, or free trades could sometimes be had by allowing yourself to be subjected to a trading screen filled with advertisements.

Assuming neither of these routes are an option for you, it then becomes incumbent that a full analysis is done of the brokerage's commission structure. Most always this is broken down into two components. The first is a fixed rate for each transaction. Many brokerages limit stock trade commissions to this component only. For trading options, most also assess the second component which is a charge for each contract bought or sold. You must extrapolate projected commissions from your normal trading volumes.

Another arena of fees is more insidious. These fees tend to be hidden and accrue slowly thus escaping the attention of the account holder. They range from inactivity fees to account closing fees. The creativity of their deployment is limited only by the imagination of those responsible for devising them. Scrutinize the fine print and list every fee levied by the given brokerage. You then are in a position to truly compare apples to apples when analyzing competing brokerage fee structures.

Whereas fees can be mathematically analyzed, the other facet of brokerage desirability relates to speed of execution and is not so easily ascertained. When you put in a buy or sell order it is important that it is executed as quickly as possible. All traders know how quickly the market can move. Saving a few dollars on commissions is not a worthy trade off for poor executions. Traders require both low commissions and superior executions. Many objective brokerage review web sites exist for information relating to execution speed. Internet forums populated by traders are also a great source of information.

When you go to open a brokerage account do not just pick the first link that comes up after your search. A few hours worth of initial research can yield thousands of dollars of savings over the life of the account. Some losing trades are inevitable. Losing profits to your broker unnecessarily via high fees is a travesty.