Online trading has grown exponentially within the past decade. A stock trader must use a broker to enter their stock orders. Today most of the available brokers also offer online brokerage services as well. Stockbrokers occupy very important positions in stock market operations. Brokers are responsible for submitting stock buying or selling orders to the stock exchanges on behalf of their clients. All stock transactions from the public must be submitted through a broker. Even when stocks are purchased online, such online transactions must also be channeled through the website of a stockbroker.

What is an Online Stockbroker?

An online stockbroker is a licensed person, agent or company authorized to carry out stock transactions on behalf of themselves or their clients. Brokers must take certifying examinations and meet regulatory requirements before they are authorized to engage in stock transactions through the stock exchanges. There are several types of stockbrokers.

Full Service Stockbrokers

Full service stockbrokers as the name suggests are stockbrokers who provide a complete range of stock transactions beyond buying and selling stocks. Any stockbroker can buy or sell stocks on behalf of their clients. But full service brokers can also offer additional services to their clients. They can conduct research for their clients, and recommend company stocks to their clients for consideration. Full service brokers can enter stock trades for clients and also sell when the customer makes profit. Full service brokers offer trading advice to their clients. These additional services come at an additional cost to the customer. A good example of a full service broker is Charles Schwab.

Direct Access Online Brokers

Direct access brokers perform limited functions for their clients compared to full service brokers. They offer their clients direct access to the exchanges, and offer them research tools and data for their investment analysis. The trading research and analysis is passed on to their clients. In return, they may charge smaller commissions to their clients for their limited assistance.

Regular Online Brokers

Online brokers are also discount brokers. They offer deep discounts on their commissions. The online broker provides an online trading portal through which clients may trade. They may not offer as much research data and tools as offered by direct access brokers. Some online brokers may not offer their clients real-time stock data. Some may provide their investors delayed quotes and research data. Examples of online brokers includes e*Trade, TD Ameritrade, TradeKing, and Scottrade. Some online brokers also offer direct access trading as well.

What Type of Broker Should You Use?

This question could only be answered by the individual investor. It depends on your knowledge and experience. If you are very knowledgeable about how the stock market works, with many years of experience in trading, you are better off using the least expensive brokers such as direct access and online brokers. Least experienced investors should use the more expensive full service brokers, and let them assist with trading decisions.

Learn more about this author, Paul Oranika.
Click here to send this author comments or questions.

---

Add your voice

Know something about Using online stock brokers to trade stocks?
We want to hear your view. Write now!