Hi everyone, HNFC is here and we have something special for you today.
Many of you asked about brokers and how to choose a right one for yourself.
So, we wrote whole article on it. Comments and Questions are welcome. Enjoy!
Before making an initial investment one of the most important aspects you need to consider is the brokerage firm you will use for investing. Spending time searching for the right firm for you will increase overall efficiency and help maximize profits.
Stock brokers usually work for brokerage firm such Redmayne Bentley based in Leeds or large banks such as HSBC and J.P. Morgan. A stock broker also known as a broker, is a regulated, professional individual who executes buy and sell orders, for shares and other securities submitted by investors. Brokers charge a fee or commission, sometimes even both for their services (I will talk about transaction costs later in the article). We need brokers because they act as the bridge to the market that connects buyers and sellers of shares, this creates liquidity in the market.
There are three main types of brokers:
Full-service brokers provides a variety of services to its clients such as customized support and interaction in facilitating trades including company research and advice, retirement & tax planning and wealth management. Full-service brokers can provide expertise for people who don’t have time to stay up-to-date with the markets and/or lacking the knowledge to invest wisely. One drawback to full-service brokers is that they usually have higher fees compared to the other types of brokers.
The standard commission fee for full-service brokers is 1 to 2% of a client’s assets. For example, Tom wants to purchase/sell 100 shares of Company A at £40 per share. If the broker charges a 2% brokerage fee to process the trade, the cost of trade would be £4,080, (£40 x 100 shares = £4,000. £4,000 x .02 = $80. £4,000 + £80 = £4,080).
Full-service brokers also charge for advice & may charge an annual fee depending on the firm price vary.
Discount brokers execute buy and sell orders only and provide no investment advice or other services. Discount brokers are usually for more experienced and confident investors with knowledge of the markets. Discount broker fees and commission are at a reduced cost in comparison to full-service brokers. The investor simply phones or emails the brokerage firm the quantity of shares they want to purchase. The per-trade flat fee ranges from £5.95 to £50 per trade depending on the firm (The International Investor, 2017), expect to pay more if you ring up to buy or sell.
Account maintenance fees are usually around 0.5% of your invested capital.
Direct access brokers (Investing online) are similar to discount brokers as they do not offer advice to clients and concentrates on speed and order execution. Direct-access brokers use computer software that allows clients to trade directly with an exchange or with other individuals via electronic communication networks (ECN). Direct-access brokers are very popular among active traders because they eliminate the role of the third party which reduces costs, this also increases efficiency and the speed of transactions. Online brokers are similar in the costs and normally charge a flat rate fee.
Common fees to watch out for are:
Tips from HNFC
If you ready to pick a broker for yourself then check this great source, 40 UK online brokers!
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Written by Ben Cousen │Young financial analyst and Co-founder of HNFC
Edited by Vee Venski
This article is not a promotion of financial investment. Investing money in financial instruments is risk-reward process. Losses and gains are part of financial investment process. Only invest money you can afford to lose.