In the past, if you wanted to start trading common stocks on the stock market, you usually had to go to a traditional broker and get expert advice on which way stocks were headed. Today, online trading sites such as E*trade, Ameritrade, and TD Waterhouse put a wealth of stock information at the fingertips of anyone who has a mouse, a computer screen, and an eye for the stock market. These trading sites are also known as online brokerages, or discount brokerages. Being able to make your own stock trades on the internet is, of course, a two-edged sword and there may be times when you wish you did have the advice offered by a traditional brokerage. However, online brokerages are growing in popularity due to easy to navigate websites and low fees.
The main attraction of online brokerages is that they generally charge much lower commissions than traditional brokerages, by a large margin. Because an online brokerage only executes investors’ buy and sell orders and does not offer the personalized service of a traditional brokerage, they are considered discount brokerages and are able to charge much lower fees for their services. Most online brokerages allow you to invest in both common stocks and mutual funds, which are collections of diversified stocks and bonds that are managed by professional money managers. Mutual funds may be a good choice for beginning investors because stock portfolios are diversified and investments are not in one single company stock.
Different online brokerages offer different services and tools on their website. For instance, one online broker may have tools which allow you to prepare reports on how your stocks have performed over the past six months, print out your dividend records for tax purposes, or have different ways of analyzing your portfolio. Another brokerage may be short on these features, but offer very deep research and white papers that aren’t available elsewhere. It pays to do your research and compare brokerage rates before you decide to open a brokerage account.