As you start progressing in building knowledge and now you're ready to actually execute or put on trades, you actually need a broker to do that and handle that.
In this video what I'd like to do is give you some insight about different types of brokers between the discount brokers and full-service brokers and how to really choose the right broker for you and your needs.
I’m Sasha Evdakov and thanks for joining me in this lesson. Before we get into the different brokers and which one you should choose for your trading, let's break down the two different types or the main types of brokers that we have.
Two types of Brokers
The way I'm going to do that is we'll call it D for Discount brokers and the other broker that we have is the Full service and we'll just call that F, we got discount and full-service brokers.
Now my guess is if you're watching this video you're probably going to go with the discount broker just because you probably want to do things on your own and I'll show you some of them benefits here in a minute regarding these discount brokers.
Really, if you're looking at full service versus discount brokers, full-service broker still do something to the end user and many people in the general public will go with a full-service broker. For example a full-service broker, what they may do is they give you advice.
They give you advice based on your taxes, they give you advice based on your future planning, they give you all this additional service on the phone, in person, as far as your retirement planning, as far as you are investing and what they do is they'll actually execute the trades.
They do many more things, however this costs you a lot of money because they have to make up their money somehow their revenue they get paid big bucks in order to do recommendations and consultations.
In the end that's what it goes down with and they execute your trade. So if you want invest in Microsoft, if you want to invest in Apple they will still execute your trades but typically you will pay much more, sometimes $50 to $100 sometimes even more so to execute that trade.
Discount brokers are more online kind of brokers they're cheaper. So they're cheaper brokers and in this scenario it costs less cost you less money for a discount broker but really what they mostly do is they just execute trades. That's really the name of the game for these discount brokers.
They do not give you advice so they don't give you a chit chat, they don't give you consultations. I mean if you have technical service problems with the platform or something like that then they will do that for you but there's no advice right here as there is in a full-service broker.
However, it cost you a lot less, to put on a trade they may only cost you $5 email, it may only cost you $10 depending on what your trading, how much shares or how many shares you’re trading. So, it will cost you a lot less if you go with a discount broker.
Choosing a broker according to your needs
For many people what they do if they're getting started, if they're just going into trading and they want to trade a little more actively is they will go with a discount broker and put on just a few trades like an ETF or something that's a diversified mutual fund or that has a basket of stocks.
Then just let it sit there because they don't need the advice, they don't need the tax planning or additional retirement planning instead they just want to execute the trades and to execute the trades the discount brokers are fantastic for that cause they're a lot cheaper.
If you want somebody to give you advice, if you want tax planning, if you want some retirement planning and estate planning then full-service brokers are great.
Now my personal advice if you're looking for advice, if you're looking for tax planning, if you're looking for what to do with your money instead what you can do is pick up the phone and call a few different places and give that person let's say a hundred, 200, or 500 dollars depending on the consultation that you're going to get in call three to five different people.
Then get some insight about what you should do as far as your own personal situation. If you walk into an accountant's office and you give them $100 for an hour of their time just to chit chat and get some insight that might be a better use of your capital than just having everything in a full-service broker because wherever their specialty is not to execute trades so when you need to execute that trade it's going to cost you more money.
Whereas, you could actually have a discount broker to execute your trades and you can have somebody else who's attacks specialist or somebody who's a retirement planning specialist to give you some insight about all those other things.
It's also good to have two to three perspectives if you're unsure of how to properly plan your future or if you're unsure of what to do with your assets with your real estate investment, so that's why the full-service broker sometimes can be great because you have that one stop shop.
Unfortunately when you get down into it executing a trade and if you try to trade more actively it becomes very expensive. Especially if you're trading a lot, let's just say $75 to $150 per trade I mean you just can't do that actively with a full-service broker but you can do that with a discount broker.
As well as discount brokers is what people use for active trading because you don't need the support, you’re trading you’re active you just need to get in and out of trades as quickly as possible with great execution rates, you need a good platform so that's what you need.
If they need some support then you can go ahead and you know if you need some support then what you can do is go ahead and call them up and get some support and insight about their panel or platform if there's something wrong with it.
Which broker to go with
The next step if you've already decided you want a discount broker and even if you decide you want a full-service broker. How do you decide on which broker to go with?
Now for this example I want to use the discount brokerage because I would assume you're looking for a discount broker because you're looking to trade a little more actively. How do you decide and choose a discount broker based on so many other brokers being out there?
How do you choose which one is the right one for you and matches what you need? Now if you haven't seen my website already go ahead and take a look at it over there because I do give some broker overviews.
I don't really do broker reviews because I think there's so many great brokers that are out there is just simply which broker is right for you so I like to do an overview of the trading platform, I like to do an overview of their website just so you get an inside look of what it looks like.
How it is to trade you know and all those different little things and maybe one of them is better or more right for you so that's what you can do is go to the website and go to the Resources section or the Broker section and then take a look at those different brokers and get an insight behind the scenes of what it looks like in those brokers because I have a handful of brokers that I’m signed up with.
It just takes a look, it gives you a chance to take a look inside and see what everything is all about. As you start looking at these broker platforms, how do you decide how do you decide what broker to go with.
There’s a few different ways that you could go about it. Most people what they do is they choose it based on cheaper rates. The way that I would like you to go about it is a little bit different so if we break the broker down into a few areas.
Let's just say we have costs or fees then we have a platform so this is their trading platform, how good their trading platform is and maybe you have let's say over here you have the support. Now we have three different areas that we can look at when it comes to the broker.
As well as you might have a few different options for your broker, so you might have broker number one over here. Let's just call that broker one, broker two and broker number three. Now if you're a person that's looking for really really cheap rates and cost is important then you may really want to go with one of these brokers versus another.
Let's say you have 100 points to allocate to each one of these, kind of like a video game where you have a hundred points to allocate for your character, one is strength and one is speed.
Let’s say you have a hundred points to allocate into each one of these areas for these brokers so if cost is really important you may allocate 80 points for the cost in broker number one and only 10 points for the platform and 10 points for the support which would put you at a hundred.
You get really great rates but you don't get that great support and you don't get a fantastic platform. That's kind of a little bit of a balancing act, so you see how that works.
Broker number two if you’re brand new in the stock market or you’re really new let's say to the internet and you're struggling with computer and tech savvy things. let's say you want like a fifty points for the support because you want really good support and you're ok with paying a little bit more on that so you might pay 20.
A 20 is not as great in terms of cost, so now you're at 70 right here and you get 30 on the platform. So you get pretty good really great support, you get a pretty good platform but your rates are a little bit more pricey.
That's another way to look at it or in broker number three which you can do is do something completely different.
You could do like a really great trading software where your platform is fantastic and you allocate 70 points on that, you could allocate five points on the support which is really horrible technical support so if you pick up the phone most of the time they're closed but their platform is great and so forth.
Then the rest of the points let's say 25 is on the cost. There are different brokers as you can see if we went with broker number one the cost is the best thing for that broker. If we went with broker number to you have really good support and fairly good platform.
If we went with broken number three, you're looking for the best platform out there really easy to use and the cost is not bad, it's ok but the support is really horrible.
There are different ways to really look at these brokers and you start breaking things down and you can't get everything in one broker because what most people want and this is the dream for most people, let’s just call this a “D”.
What most people want is when they're choosing a broker, is they're looking for let's say a phenomenal cost, you know and then they want an amazing platform and they want really pretty good support and they’re way over budget or way over the baseline of their hundred-point.
If you got 90 points on costs, 90 points on the platform and 50 points on the support, you're just way beyond your limit because you can't really have amazing costs and an amazing platform and really amazing customer support it just usually doesn't really go that way that's just part of business and the way people structure expenses.
If you're if you're cutting costs somewhere you need to do it somewhere. So you need to do it probably on the support because it's really expensive to have people there sitting and answering the phone to help you out.
In the same way, if you’re cutting costs somewhere maybe to have a great platform you have to have a cutting cost on the support but you have a great platform, so you hire more developers so you have less support but you hire more programmers to get a really good platform so that would be something like over here in version number three because you have great platform.
The costs are ok but the support is really bad because you have more developers and not more you know people on the phone answering questions so it all goes hand-in-hand and you have to understand what is it that's more important for you.
If you're probably new to the game, I would say focus on something with fairly decent support and worry less about the cost, eventually as you trade more you can get this cost down and a decent platform is fine to start with the focus on the support if you're just getting started.
You’ll probably pay a little bit more for it so your costs won't be that fantastic but it’ll get you started and then later what you can do is switch brokers or get a second one, you know you can constantly upgrade and switch and change things around based on your personal needs.
There you have it I hope you got some insight and learned a lot about choosing your broker for you. It's all about that allocation of what's important for you. For somebody that has a discount broker and they have a really great support, they might be paying a little more on the fees.
If you’re looking for lower fees then you're probably going to be getting less technical support or assistance or maybe not as great of a trading platform so it goes hand-in-hand on what it is that you want from your broker.
Thanks for joining me in this video and remember that there's more to life than just financial gains. Go out do what you love, contribute to other people around you, but most importantly live life abundantly.
I’ll see you next time.