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15 Tips for
Selecting a Broker... Page 2
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6. Stretch your
buying power, but watch the cost.
A margin account lets you borrow against the equity in your account to buy stocks, which
stretches your buying power. You're charged interest, of course, on the borrowed funds,
but margin rates vary wildly. Check them out, and be sure to factor them into the cost of
the trade.
7. Checks, sweeps and interest rates.
Most brokers offer money market accounts. Three questions to ask a potential broker: What
interest rate do they pay? Do they automatically sweep any idle funds into your money
market account at the end of the day? Do they allow you to write checks on the account and
is check-writing free?
8. Tools of the trade.
Consider the extent and the price of the investing tools available on the site (company
profiles, earnings estimates, stock charts, technical analysis, screening tools, portfolio
alerts, analyst research reports). Frequent traders may be better off by going with the
lowest commission and doing their research elsewhere on the Web. Depends on how much the
broker charges for the use of its tools.
9. Talk the talk.
Make sure you know a market order, from a limit order, a stop order, from a stop limit order, an AON from a GTC order! (Most brokers have
glossaries on their sites.) And, speaking of orders, if you use stop or stop limit orders
to protect your profits, be sure you pick a broker who accepts them.
10. Practice makes perfect.
Use the free trading demo at the broker site to get a feel for trading online. It'll take
some of the terror out of placing that first online trade. Even better, take advantage of
some of the market simulation games .
11. A broker is still a middleman.
Pressing the Submit key or receiving an electronic confirmation does not mean your order
was executed; it simply means it was received by the broker who must then send Nasdaq
trades through a market maker and NYSE trades
through the specialist at the exchange. Be
sure you understand your broker's entire execution process. Most brokers send an email
confirmation when the trade is actually executed. Some require a human broker to review
trades, which will slow the execution. Many sell their order flow to specific market
makers (that's how they can charge such low commissions). If the process is not clearly
outlined on the site (check the FAQ), inquire by email.
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