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Basics >> Choosing a Broker
Depending on the type of investing that you plan to do, you may
need to hire a broker to handle your investments for you. Brokers
work for brokerage houses and have the ability to buy and sell stock
on the stock exchange. You may wonder if you really need a broker.
The answer is yes. If you intend to buy or sell stocks on the stock
exchange, you must have a broker.
Stockbrokers are required to pass two different tests in order
to obtain their license. These tests are very difficult, and most
brokers have a background in business or finance, with a Bachelors
or Masters Degree.
It is very important to understand the difference between a broker
and a stock market analyst. An analyst literally analyzes the
stock market, and predicts what it will or will not do, or how
specific stocks will perform. A stock broker is only there to
follow your instructions to either buy or sell stock not to analyze
stocks.
Brokers earn their money from commissions on sales in most cases.
When you instruct your broker to buy or sell a stock, they earn
a set percentage of the transaction. Many brokers charge a flat
per transaction fee.
There are two types of brokers: Full service brokers and discount
brokers. Full service brokers can usually offer more types of
investments, may provide you with investment advice, and is usually
paid in commissions.
Discount brokers typically do not offer any advice and do no
research they just do as you ask them to do, without all of the
bells and whistles.
So, the biggest decision you must make when it come to brokers
is whether you want a full service broker or a discount broker.
If you are new to investing, you may need to go with a full service
broker to ensure that you are making wise investments. They can
offer you the skill that you lack at this point. However, if you
are already knowledgeable about the stock market, all you really
need is a discount broker to make your trades for you.
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