There was a time when, to trade in stock, you had to go through quite a complicated procedure. First, ring your broker to tell him which company you wished to invest in, what class of shares and how many you wanted to buy. Then your broker would then have to call his agent at the stock exchange who would then have to use a peculiar hand signal language to buy the stock from a stock jobber and then report back all the way down the line . . .
That was the method used in England, and much the same kind of system applied in most other countries with a stock market. And you would invariably pay your stock broker a handsome sum on each transaction, for managing the whole process, including the stamp duty impressions on the share certificate. It could take weeks to finalise the purchase of some stock.
This was all swept away in the late 1980s. In the UK, where the whole system had been pioneered in the eighteenth century, the roles of stock brokers and stock jobbers were combined into that of “market makers”, though in practice they are still called stock brokers. Similar processes of modernisation took place in other countries.
Stamp duties were largely abolished and the coming of the internet has transformed stock trading yet further. This gave stock brokers an opportunity and they were quick to capitalise on it. Online trading has meant lower costs and increased profits. Although large sums had to be expended on custom software that could serve the requirements of clients, at the same time an explosion in online trading meant more turnover and more profit.
It wasn’t long before the lower costs allowed stock brokers to entice people who had hitherto not been inclined to trade on the stock market, by offering a discounted service for a discounted price. Whilst you can still have a managed account with a stock broker, which gives you easier access to advice and other services, including in some cases actual trading on your behalf in accordance with your instructions, most online clients opt for discount stock trading. They don’t have the full range of services but they don’t mind that because they are paying lower fees.
So discount stock trading consists of using the facilities of an online stock broker with minimal personal attention from the stock broker called for. This usually means that the client uses the interface provided by the stock broker’s web site in order to buy and sell stock and other securities.
Once you’ve decided to start discount stock trading you should select a suitable online stock broker. It’s vital to choose one with an online system that you can use easily, and easy access to telephone help if you should need it. There are hundreds to choose from, but if you’re a beginner you should seek recommendations from experienced traders. Check out the online forums. Just type “stock trading forums” into your favorite search engine.
If you find one or two online brokers that you believe will suit you sound out other people on the forums as to their opinion. In particular watch out for hidden fees or poor client service, especially if you are starting out. Make sure your chosen broker operates “demo account” facilities so you can practise trading before committing yourself with real money.
You will be required to open an account by making an initial deposit of between $500 and up to around $2,000. This is more than anything just to check that payments and receipts to and from your bank account can be handled smoothly. This will take a day or two to organise. You can then deposit further amounts if you wish, and in any event commence trading.
Philip Gegan
