Brokerage Firms

The first thing you need to do to start investing with real money is to find a brokerage firm.

Licensed brokerage firms provide brokerage accounts which serve as portals to investing your money. It is through this tool that you, the investor, place orders which are executed on your behalf by the firm. You own the assets contained in the account, and any capital gains or dividends received must be claimed on your income tax return.

An important thing to note here is that, not all brokerage firms are equal. They have different execution times, analysis tools, types of tradable assets, or varying degrees of available investment advice, hence the difference in commissions charged. There are also different types of brokerage accounts that you can open.

Commissions

An important element of each trade is the commission charged by a brokerage firm for conducting transactions on your behalf. Commissions can range anywhere from $0 to $40 depending on the brokerage and the level of human support provided in the transaction. Aside from management fees that come from providing direct advice from a broker or adviser, these fees are typically what allow the firms to make money.

The brokerage with the lowest commission is not necessarily the best one. This is a key thing to keep in mind. As mentioned above, different brokerage firms prioritize different services. For example, discount brokerages offer mainly online trading platforms for do-it-yourself or self-directed investors, where an individual has to conduct their own research and decide which securities they’d like to buy. Brokerage firms may also provide investment advice and personal support and charge additional fees for extra assistance.

When working with an individual broker, it is important to be aware of the conflict of interest that can sometimes arise between brokerages and their clients. Since commission-based brokers need more transactions to increase their revenue, some unethical brokerage firms may encourage their clients to make more trades, even if those trades don’t align with the investor’s investment objectives.

Tap to watch a short video recap of what you need to look for in a brokerage firm.