Avoid Being Scammed by Choosing a Brokerage Carefully

Feb 8, 2010
Fleur Hupston

Investing money in the hopes of returns in the future always carries some measure of risk, all the more so if a broker is found who is more concerned with funding his own retirement at the investor’s expense.

Novice investors may be putting themselves at the mercy of a shrewd broker working on a commission basis, who may put his own economic interests before that of the investor. Don’t trust an online broker until the following has been thoroughly checked out.

Online Stock Brokerage – Experience and Reputation

In deciding to choose an online broker, ask the following questions:

If an investor wants advice on buying or selling stock, how dedicated is the broker to achieving the financial goals of his customers, what quality analysis and research does he undertake and what are his service levels? How does he approach investing and what criteria does he have for making decisions? What is his track record in this regard?

Online Stock Broker rates

Rates at which an investor is charged for buying or selling through an online account are usually charged based on a sliding scale. The more units purchased in a single transaction, the less the “cost per unit” will be payable. The exact sliding scale can vary and may sometimes be negotiable for larger purchases.

Some online discount brokerages simply act on instructions and charge per trade. Compare rates between brokers and be sure to thoroughly understand how the stock brokerage operates. For assisted trade, how accessible is the broker by phone?

Broker Licenses and Certification

Stock brokers must pass the General Securities Registered representatives examination to obtain a license. Certain states in the USA may also require additional exams. Many brokers start their own online business and become a discount stock broker after receiving their certification.

List of securities regulators for each state is found at North American Securities Administrators Association

Buying and Selling Incentives

Look for brokers offering extra incentives to open an account with them. Some offer a limited free brokerage period. Others will offer free reports on the markets an investor is interested in. Bonus offers can help to get an account established and setup a profitable trading account.

Online discount brokerages such as Scottrade charge $7 per stock trade online but will charge more for phone and broker assisted trades. Scottrade or similar online services such as Options House offer certain services for free and are well established, popular brokerages with good reputations.

These days, online stock trading has never been easier. Despite the presence of manipulation and investment scams, many investors have been able to make money through sound investment strategies. By practicing diversification or researching wisely to find a reputable, trustworthy stock broker, investors can easily protect themselves.

More Articles on Investing:

Minimizing risks for beginners is examined in the article Best Ways to Buy and Sell Stocks.