How Brokerage Companies Work (You NEED to See This)

So one of the first questions you’re gonna ask is what is a brokerage account and how do they work? That’s what I’m gonna talk about today.

So starting at the top, kind of the overall view, there’s two major different types of brokerage accounts and one that I really want you to focus on. So let me start out with terms.

Full Service Brokerage

The first is what’s called a full service brokerage. This is kind of like the, I would say, old-school brokerage. You think back to the olden days with movies and stuff. One of my favorite trading movies is “Trading Places,” and if you remember, Dan Aykroyd, he was in what would be called a full service brokerage firm, you know, the big, oak-paneled offices and the fireplaces and all of the guys doing research, offering trade ideas.

trader stock 8

Now that’s old, but these still exist today where you could go down to a brokerage, sit down with an advisor, and talk about your goals, what you’re looking to do, how much money you have to trade, and that’s called a full service brokerage company.

Now they’re going to charge you for that, obviously they have assistants, they have staff, they have a guy with a bunch of experience, and he’s going to give you his advice.

You’re gonna pay for that, and that’s kind of different from what we’re looking at from day traders. So that’s the old-school full service brokerage firm.

Discount Brokerage

What we’re looking at is what’s called a discount brokerage, and these kind of started in the dot-com boom, especially with the emergence of the internet.

Kind of think back, I mean even I had an E*TRADE account in the late nineties. Now that you had a computer, as well as the internet, you could actually get direct access to the internet and trade your own stocks.

Back in the day, back to the “Trading Places” time, you had to call your broker and say “Buy this stock, sell this stock.” Now we’ve got laptops, we’ve got the internet. You can do it yourself.

So that’s where a discount brokerage comes in. So now, whatever that full service brokerage account was charging you, it’s way less than the 495 or less that the discount brokerages are charging you because it’s all electronic.

That’s at the end of the day, whether you agree or agree with automation, you strip out the humans, your costs go down. So now with your electronic trading and your laptop and your internet connection, you can significantly lower your cost, which is what we want as new traders and active traders.

We don’t want to be calling that broker every day saying “Do this, do this” and paying his salary because that’s going to eat up all your profits, well not all, but a lot of your profits.

So look for those discount brokerages, we’ve got a bunch that we partner with at StocksToTrade, all across the gamut from higher touch to lower touch to unlimited low commissions, so check out all of those discount brokerages we have listed on our webpage.

Independent Broker

The third type of brokerage, which again, maybe as day traders we won’t necessarily use but I want you to be aware of is an independent broker.

Now these are smaller firms that are looking to maybe invest over longer terms, so they deal with a smaller subset of equities, but they are still higher touch than that discount brokerage, but they are lower touch I would say than a full service brokerage.

Now, they can still put you into any type of instrument and give you that ability, especially with your retirement account or longer term account, so it’s a good tool, but more of a longer term type focus.

So again, check out these types of firms, be educated. I want you to know everything you can possibly absorb about the markets. Everything is changing, always modifying, there’s always something new. You have to have this thirst for knowledge.

Understand how brokerage accounts work and build that knowledge account every day. But, as a day trader, as a short-term trader, look for those discount brokerages and be aware of your options, and always look to lower your costs as a new trader.

Thanks for reading our article.

Beer buff. Incurable zombie guru. Amateur introvert. Avid writer. Typical bacon junkie. Trader.