It was briefly mentioned above that you need to have a brokerage account in order to do any trading. When you are selecting the broker that is going to help you, you can find that it is a complicated process. But, in choosing a broker, you are choosing stock (in a way) because it will require that you seriously contemplate if that broker is the right one for you.
Before you can ever pick which broker is the right one for you, you need to know what constitutes as a broker. The two types of brokers are those who deal with their clients directly (regular brokers), and those who act as a go between the customer and a larger broker (broker-resellers).
The regular brokers tend to be more reputable than the broker resellers. However, that does not mean that the resellers are bad, just make sure that you check them out thoroughly before you go and sign up with them. The regular brokers are organizations that are recognized by the FINRA (Financial Industry Regulatory Authority) as well as the Securities Investor Protection Corporation.
There are also brokers who handle transactions for structured settlements received from a personal injury case. These are specialized brokers and you should seek out one that has solid experience and relationships with key people in the local legal community. How well do they know the judges? Can they tell you which judge you want to get to approve the sale of your structured settlement so you can get your settlement paid in one lump sum of cash? Top-companies monitors these brokers and companies and directs you to the best company to sell your structured settlement to.
Focusing on the right company to assist you can be difficult, as just like other industries, the structured settlement industry has good companies and bad companies. We suggest doing online research and comparing the different companies and getting quotes to see which one best suits your needs and the needs of your family.
Looking at it more, there are even full-service brokers and discount brokers. Just like the name says, the full-service broker is going to offer more services to their investors. But, the services do not come without a price. With a full-service broker, most of the legwork is done by the broker who will then provide the investor with one on one advice that is individualized to that investor.
The discount broker is going to offer you the option to solicit a broker for advice with your already existing account. The thing you need to remember is that when you execute the trade, you are going to be paying more after you consult an actual broker than you would if you have did a regular online trade.
Make sure that you factor the following into your budget when you are choosing a broker:
Minimums: most brokers will have a minimum balance for starting a brokerage account with them. This number can range from $500 to $1,000 if you are using an online discount broker.
Withdrawal: while the money is yours, you may find it slightly difficult to get out of your account. This happens because the brokers tend to charge fees in order for you to make a withdrawal from your account. Or, some even will not release if it is going to cause your account to drop below the minimum. Some accounts allow you to write a check. But, these types of accounts are going to require a higher minimum balance.
Margin: these accounts are going to have a higher minimum balance as well. When you do decide to open one, if you do, then you are going to have an account where your broker will lend you cash in order to purchase securities. The account will be collateralized by the securities as well as the money.
Complicated fee structures: most brokers will have the same fee schedule. However, there are some that have a complex fee structure that will make it harder for you to find where the hidden costs are. This happens more with the resellers who are trying to use the fee structure as a selling point to get your business. If the broker that you are looking at has a complicated fee structure, make sure that the broker is real and is going to have your best interest in mind.
In looking at the brokers, you have to get options approval because every broker is going to have different levels for options trading. The approval levels vary from zero to one. Make sure that you end up having an approval level of one or high so that you have the ability to buy calls and puts.
Level zero is the first approval where you are going to have the money or stocks that will take care of your positions. You will be able to sell calls and puts that are in your own account.
Level one is where are able to buy the calls and puts even if you do not own the underlying securities. You are also going to have the ability to do a long straddle spread where you will be buying an equal number of calls and puts with the same stock at the same strike price.
Level two, you are now approved to do all that is on the previous two levels, however now you are able to do spread trades.
Level three is the highest level you can get from a broker. This level now allows you to sell naked puts or naked calls as well as use more sophisticated strategies to trade. There will be a higher margin of requirements when it comes to selling naked puts. Every broker is going to be different and requires you to have a different amount of cash or stocks in your account so that you are able to fulfill your obligations.
A few of the best online brokers are OptionsHouse, Fidelity, Scottrade, Interactive Brokers, TD Ameritrade, TradeStation, and E*Trade.
- No minimum to open an account
- Stock trades are $4.95 a trade. Options trades are $0.50 a contract with a $4.95 base.
- Has stock trading, mutual funds, mobile trading access, and options trading
- $2,500 minimum
- $7 per online stock trades
- Offers stock trading, mobile trading access, options trading, and mutual funds.
- $2,500 minimum
- $7.95 commission
- Offers stock trading, mobile trading access, futures trading, mutual funds, options trading, and FOREX trading
- Interactive Brokers:
- You must have cash or stock deposit of $10,000 or $5,000 for an IRA account. All money must be equivalent to the amounts in USD.
- Stocks, as well as ETFs, are $0.0005 to $0.0035 a share.
- Features include mobile trading access, options trading, stock trading, mutual funds, futures trading, and FOREX trading.
- $500 minimum
- Commissions are $9.99
- You’ll have access to mobile trading, futures trading, mutual funds, options trading, stock trading, and FOREX trading.
- TD Ameritrade:
- No minimum unless you want to do margin options and then it is a $2,000 minimum
- $9.99 for any online equity trades
- Access to FOREX trading, futures trading, stock trading, options trading, mobile trading access, ETF and mutual funds
- $5,000 minimum if you are opening a non-day trading account
- Options trades are $1 a contract with non-minimum. Stock trades are $.01 a trade with a $1 per trade minimum.
- Features include mobile access trading, stock trading, options trading, mutual funds, and futures trading.
Bear in mind that you will need to complete your research to figure out which broker is right for you based on the type of trader you are along with the amount of money that you have to put into an account. Look at the different aspects of every broker before you decide on which one you are going to use because there could be hidden fees that you do not know about and that could come back to harm you at a later date.