Guide to Discount Brokers

In the world of investments, a broker is your liaison to the market, a licensed professional qualified to make recommendations and buy and sell on the stock exchange. Unlike full service brokers, discount brokers are paid a salary rather than a commission. It is their job to execute your trades rather than solicit your business or council you individually.

For a young investor starting out with a small pool of capital, discount brokers are usually the way to go because the savings over a full service broker are significant. Furthermore, many online discount brokerage firms offer a lot of useful information that can take the place of one-on-one advice. Investing on your own is a good way to learn about the market so that you become a smart, disciplined investor.

There is no magic-bullet solution for choosing the right discount brokerage firm for you. To do it well, you need to take your investment style into consideration, then navigate your way through a myriad of pricing structures and service options.

1. Identify your investment style.

2. Choose a pricing structure that compliments your trading habits.

3. Choose a discount and a deep discount brokerage firm. Discount brokers won't have local branches, but many do put out materials to help their investors. This is different from a deep discount brokerage firm that executes trades only.

Action Steps
The best contacts and resources to help you get it done

Start comparing discount brokers

Yes, it's a drag, but savvy investors know that there's no way around the task of comparing brokers. Put on your reading glasses and start scrolling through commission schedules and account minimums.

I recommend: The Motley Fool offers a breakdown of reputable online discount brokerage firms. Remember that this information represents an overview of comparable fees and services. See Investopedia's breakdown of common fees and how to avoid them.

Get the skinny from customers and experts

If you think you've found that special discount brokerage firm to be your investment partner, make sure exactly what they're about before you trust them with your money.

I recommend: Rate brokers at a glance by checking out Smart Money's chart of broker ratings. Be sure to search for your firm at FINRA, a national non-government securities regulator.

Learn the lingo

Striking out on your own with a discount or deep discount brokerage firm means that you're taking responsibility for making smart investing decisions. Take the time to learn about the market and stay on top of current conditions.

I recommend: Investopedia lists a number of free newsletters delivered straight to your inbox. Sign up to receive an investment term of the day, or keep track of what Warren Buffet was up to this week.

Find online discount brokers

Online discount brokers are the way to go for busy professionals who work long hours. This is your best bet if you don't want a lot of frills or extra charges for the full-service treatment you may not need.

I recommend: Fidelity, TD Ameritrade, Scottrade and ShareBuilder got high marks from Consumer Reviews for the best online discount brokers.  Consumer Reviews also offers expert analysis and customer evaluation surveys from sources like Forbes, Barron's and J.D. Power and Associates.

Tips & Tactics
Helpful advice for making the most of this Guide

• If you're an investor who likes to trade, choose a discount broker who charges a low fee for buying and selling. If you like to hold onto your stocks, avoid monthly inactivity fees. Of course, most investors are somewhere in between; if this is you, find a smart compromise.
• Discount brokerages who do business online are cheaper than discount brokerages that let you trade over the phone. However, make sure you can talk to a broker in case of an emergency.
• If you think you might want individualized help from time to time, choose a brokerage firm that gives you the option of speaking with an expert. Usually, you'll be charged on a per-transaction basis for this service.

The official source of Discount Brokers is the Discount Brokers page at Business.com