…and a recommended list of Brokers
In order to trade stocks and options you must first have a brokerage account. There are several types of brokerage accounts, or what’s also known as trading platforms, so I will provide an explanation of each account type and a few recommendations for setting up an online or direct access brokerage account.
TYPES OF STOCK BROKERS
Full Service Brokers
Full service brokers provide investment advice and can provide quotes, charts and news that isn’t available for free on the Internet. Due to the fact that they are providing premium services, the commissions they charge are higher. While there are some full service brokers that know what they are doing regarding option trading, the majority do not. Most are simply buy and hold securities “order takers.” They will occasionally recommend a certain stock or re-allocation of asset balancing in order to generate commissions. They make their money regardless of whether you do or not.
The reason for creating this web site was to show even the average person how to take control of their own investing/trading. The information presented here is clear and concise. It is for the individual who can devote a minimal amount of time to investing as a way of obtaining superior results and take responsibility for their own investment decisions. That being said, a full service broker is not necessary or recommended.
Online Brokers
An online broker does not give personalized investment advice. The only service the online broker provides is to execute the trades. Their commission structure is much cheaper because they are not providing any additional services aside from a comprehensive web site to track your investments and placing of electronic trades. Most good ones will offer charting services, news updates (although not as extensive as the full service broker), company financial data such as balance sheet, insider buying, PE ratios, and dividend yield to name just a few. There is also a wealth of financial information available online through valuable resources such as Google Finance and Yahoo Finance. These sites can give you access to any information you could possibly need regarding any publicly traded company.
For most traders, an online broker is the far better choice because of the tremendous savings on your commissionable trades. We at Hyland Financial use an online broker and have never had a problem getting “filled” or with stock/option pricing. Stick with the larger and more well know online brokers such as Scottrade, E*TRADE, Charles Schwab or TradeKing. The larger names have been proven to be reputable. The savings in commissions is well worth the small amount of extra effort.
TYPES OF ACCOUNTS
Having decided on a broker, you will now need to set up an account of which there are several different types. The type you will be approved for will depend on the amount of money you open your account with and your level of trading experience.
If you are new to trading and starting with $2,000 or less, you will most likely only be approved for a cash account. If you have some trading experience and open an account with more than $2,000, you should be able to be approved for trading put and call options contracts. Buying put and call options contracts strictly limit the trader’s risk to the initial cost of the option being traded… no margin calls, no potentially open-ended losses.
In order to short stock and enter “spread” trades you will need a margin account. We do not use or advocate the use of buying or selling on margin. A cash account allows you to purchase shares of stock only.
Option Account
An Option Account allows you to trade equities as well as options. Being able to trade options is necessary if you wish to take advantage of the trade recommendations and strategies which we offer on this site.
Online brokers usually do provide access to charts (1 day, 5 day, 6 month, 1 year and possibly 5 year). The following web sites offer free internet based technical analysis software:
http://www.bigcharts.com
http://www.clearstation.com
http://www.stockcharts.com
