To buy or sell a stock, you usually have
to go through a broker. Generally, the more guidance you want
from your broker, the higher the broker's fee. Some brokers,
usually called
full-service brokers, provide a range of services beyond filling buy-and-sell
orders for clients, such as researching investments and helping
you develop long- and short-term investment goals.
Discount brokers
carry out transactions for clients at lower fees
than full-service brokers but typically offer more limited services.
And for experienced investors who trade often and in large blocks
of stock, there are
deep-discount brokers
whose commissions are even lower.
Online trading is the cheapest way to trade
stocks.
Online brokerage firms
offer substantial discounts while giving
you fast access to your accounts through their Web sites. You
can research stocks, track investments, and follow the latest
market developments. Some online firms even enable you to trade
before and after normal market hours. Most of today's leading
full-service and discount brokerage firms make online trading
available to their customers.
Online trading is an extremely cost-effective
option for independent investors with a solid strategy who are
willing to undertake their own research. However, the ease of
making trades and the absence of advice may tempt some investors
to trade in and out of stocks too quickly, and magnify the possibility
of locking in short-term losses.
Avoiding commissions
You may also be able to buy stock directly
from the company that issues it through a
dividend reinvestment plan (DRIP).
If you sign up, your dividends
are automatically reinvested to buy more shares, and you can make
additional cash purchases as well. A number of large companies
offer these plans and charge only a minimal fee to handle your
transactions.
One drawback of using a DRIP, however, is
that it may take more time to sell stocks that are held in your
company account than it does to sell shares held in a brokerage
account.
