Types of Stock Brokers

Types of Stock Brokers

What the term "full-service broker" really means

Are discount brokers really the cheapest?

How brokers make money with commissionless trading

What the term "full-service broker" really means

Full-service brokers charge the highest commissions

Cost of a typical trade may cost $120

Some full-service brokers

• Merrill Lynch
• Smith Barney
• Dean Witter
• Prudential

But a full-service broker may help you in many ways by

• Pointing out potentially attractive securities
• Helping you with insurance
• Providing estate planning

Of course these commission-based advisors may place their commissions before your interests

Are discount brokers really the cheapest?

Trading through a discount broker will cost less than a full-service broker

Cost of a typical trade may cost $80

Discount brokers normally won't provide advice on which security to buy or sell

Some discount brokers

• Charles Schwab
• Quick & Reiley
• Fidelity
• Vanguard

Trading through deep-discount brokers will cost you even less

Trades might be as low as $29 or even less if you use an automated system

But be careful of additional fees

Some deep-discount brokers

• Pacific Brokerage
• J.B. Oxford & Co.

How brokers make money with commissionless trading

With increased automation, the cost of trading securities is going down, so brokers don't need to make money from commissions

Especially for NASDAQ traded stocks, most market makers make much more money on the bid-ask spread than they do on commissions

The potential to make money as a market maker is so great that many brokerages actually pay for order flow

Confirm that you get a good price for the stock that you're buying

Don't just think in terms of commission