Online Brokerage: A brokerage offers intermediary services in different areas such as investing. This service connects buyers to sellers or vice versa to simplify a transaction. Brokers mediate between buyers and sellers and are paid a commission for it.
They get paid for solving a client’s problem. They can also provide information about the situation on trading platforms, lending, margin transactions, etc. Learn from this guide about the types and functions of online brokerage.
What Does a Brokerage Do?
We’ve already mentioned that brokers are in charge of solving the client’s problems. But, they can also offer other services.
For instance, they can create a technical base to facilitate transactions. Some also store and protect customer data. Again, they can execute a trade on behalf of the customer on the financial market. Additionally, they can inform the client of other market participants and make the transaction decision on their behalf.
While mediation is the main role of broker companies, they carry out other crucial activities. In fact, the financial market’s existence depends on brokers.
Brokerage companies specialize in different areas, including;
- Real Estate Brokerage
Such brokers search for real estate buyers and sellers like residential properties, retail, offices, warehouses, etc.
- Stock Brokerage
This broker acts on stock or commodity markets. They buy and sell assets on behalf of the client when the market is favorable. Note that the exchange market is profitable, but its operations are hard. There are various special approvals and permissions needed before a transaction goes through. That’s why many people leave this task to a professional broker who has experience working on the market.
- Forex Brokerage
Individuals use this service to access the forex currency market. Note that the forex market isn’t open to everyone. But investors can access it using the mediation of forex brokers.
- Credit Brokerage
These brokers have information and professional contacts from credit institutions. They can help you choose the right lending option and obtain the financial help you need.
- Leasing Brokerage
These brokers are like credit brokers but specialize in leasing equipment. They mostly work with commercial organizations and legal entities.
A brokerage account is crucial for those who buy stock or other investments. Having this account can help you grow your wealth and achieve your financial goals. You use this account to buy and sell bonds, stocks, currencies, futures, options, and other investment types.
Brokerage accounts are similar to bank accounts. That’s because individuals can deposit and withdraw money from them whenever they like. They also allow automatic transfers, and some offer check writing.
But, there are also some major differences between these two accounts. A brokerage account allows you to make an investment that has more returns compared to a bank account. However, there are also risks that the brokerage account’s value will go down.
Bank accounts have FDIC insurance that protects customers from losses. But, there’s nothing to protect your investment losses with brokerage accounts. The insurance available only covers the brokerage failure.
Investment You Can Make with a Brokerage Account
Common Stock- many investors buy common stock as shares in some company’s benefits like dividends or gains in the stock price. Companies raise money using common stock through equity financing. For example, a company can issue common stock if they are seeking capital for the first time. This gives the business the cash it needs and buyers a chance to take ownership of the business.
Preferred Stock- when a company starts paying dividends, it prioritizes preferred shareholders first before paying common shareholders anything. And if it goes out of business, the cash in liquidation is paid to the preferred shareholders first and the rest is distributed to common shareholders.
Bonds- these are loans investors give to governments and companies. They don’t represent ownership, however. They are more like a debt obligation that the entity in question has to repay. The company agrees to make fixed interest payments to the investors over the loan’s life.
Other investment types you can make include real estate investment trust, mutual funds, and money market accounts.
Choosing an Online Brokerage Account Provider
Once you’ve decided to open a brokerage account, you have two options; online brokers or Robo brokers. An online brokerage account is suitable for someone who wants to purchase and manage their investment. Online brokerage Hong Kong companies enable you to sell and buy investments through their website.
There is also the managed brokerage where your investment is managed by a human or Robo advisor. This account is perfect for those who want help managing their investment. The companies manage your investment depending on the goals and investing timeline. MoneySmart offers a curated list of brokerage accounts and rewards for those opening accounts through this platform.
Other things you should consider when choosing an online brokerage company include;
Minimum account balance-most brokers need you to have $1000. If you want to start with less, look for one that requires little or no account minimum.
Execution speed- stock moves are volatile and rapid. Thus, choose a broker who executes trade fast for you to make profits.
Commission and fees- make sure you know how much a brokerage service charges to avoid surprises. Sometimes the broker may advertise themselves as the cheapest option only to load up their charges into other fees.
An online broker is a great way to invest in your future. Plus, there are online brokers for different services. So whether you want to buy stocks or venture into forex trading, there’s an online broker for you.