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Types of Online Broker Accounts

An online brokerage account enables the account holder the ability to buy or sell shares of stocks, stock options, mutual fund, ETFs, commodities and more online. In order to trade these financial instruments, the prospective trader must open an online brokerage account and specify the type of account and the type of securities that will be traded through the online broker account.

There are different types of brokerage accounts available from online brokers; the choice of the suitable one depends on the needs of the trader. The three main account variations are the cash account, margin account and discretionary account.

Cash accounts

The cash account is the simplest form of brokerage account and is the most common type of online broker account. With cash account, the account holder deposits their funds into the account and uses the available cash balance to buy investments and make trades. The amount of trades is limited by the available funds in the account.

In order to open the online brokerage account there is not only a standard minimum deposit with enough money to open the account. Most of them provide the interest for the non trading period. The online broker transfers the money to stocks once you start to buy shares.

Since the total amount of net transactions cannot exceed the available funds, the maximum losses, should your trade move in the wrong direction, are limited to the total account value as well.

Margin accounts

Margin accounts allow account holders to conduct trades and make transactions based on credit. With a margin account, the account holder can make trades using the existing account as collateral for credit. The account holder who uses margin trading is using the investments as collateral to obtain credit and make trades.

Usually the online broker will lend or allow credit transactions up to an amount equal to 50 percent of the cumulative value of the cash and stock held in the account. Margin trading involves credit from the online broker and the company will charge interest on the amount of credit used.

Margin accounts require a more vigorous background check by the online broker and there will be a separate margin account agreement to cover the terms of the account.

When credit is extended on the account and the value of the shares owned falls in the value, the account holder may be subject to a margin call. This is usually occurs when the market value of the stock falls below the amount of money borrowed from the broker. If you get such a margin call, you can choose to deposit the money or your can sell the stock immediately to repay the difference.

Discretionary accounts

Discretionary accounts are not very common with online brokers. These accounts are most commonly seen with the high net worth account that wants a representative to make their trading transactions. The discretionary account gives authority to the broker or broker representative to make trades without first consulting the account holder. The broker can buy or sell the stock without giving you any notification.

Discretionary accounts are more common with full service brokers and large money managers that have established trust. Discretionary accounts also have larger fees than standard online broker accounts.

Selecting the best online brokerage account depends on the individual’s financial targets and trading experience. Some online broker firms provide advisory services to help the novice trader and all online brokers will have customer service to help choose the best online broker account to match your needs.

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How to Choose an Online Broker Account

An online brokerage account enables the online broker account holder to buy and sell a variety of different financial securities through the internet. An online broker account may be one of the best options for the technologically savvy guys who want to invest in stocks, bonds, currencies, commodities or more from the comfort of their home or office.

First select an online broker who can quickly execute your type of trading activities and keep a track of your money and stocks with easy account access. There are many online broker firms offering a variety of accounts with varying levels of expertise and service. The online trading industry continues to be a fast growing field with many prominent players offering numerous types of accounts and features.

An online broker account can be used to trade a variety of securities. More investment options doesn’t make one online broker better than another, but many traders end up using more services and trade different securities as the markets change and the ability to engage in these trades may be beneficial down the road. Investment options an online broker account may have available includes trading stocks, mutual funds, ETFs, bonds, currencies as well as other options.

Decide on how much money you are planning to invest and how frequently you want to trade with your online broker account. Most brokerage accounts need a minimum initial deposit.

Of course, trading commissions has to be a factor to review before choosing the best online broker account to match your needs. Select the online broker with a lower fee for the transactions you intend to engage in relative to the amount of service the broker provides. After all, low commissions alone are not the only factor to determine if an online broker is providing the best service for your money.

When reviewing the costs and commission structure for different online broker accounts, be sure to review the fees and commissions charged for the types of transactions you intend to execute. Don’t forget to check the online broker account costs for services such as running below the minimum account balance, transferring money to and from the online broker account, or even inactivity fees.

If you don’t have sufficient experience in trading, it will be wise to go for an online broker firm which offers you tips for trading and market analysis. Choose one that offers you guidance to invest your money in the financial products that appeal to you, especially if you lack enough experience to analyze the market movements and products on your own. Research tools and online educational services may be a valuable resource for some traders that searching for a new online broker account.

Check out for the live operator services if you need personal assistance. Online assistance will not be of much help particularly if you are new to the field. Ensure that this assistance is trouble free without the need for long waiting hours on the call.

Look for any other services you may require in addition to online trading. A few online brokers offer a number of ancillary services including banking options, lending activity and more.

Always visit the website for a number of online brokers to thoroughly shop and compare online broker accounts. Regardless of the online broker account features and services, analyze how much the site usage will cost you. This will help you in better decision making about the choice of online brokerage account.

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Choosing an Online Broker

When it comes time to switch online brokers or start using an online broker for the first time, there are a variety of companies to choose from. Not only are there a number of online brokers to choose from, there is also a wide array of products and services available within the online brokerage industry. Choosing the right online broker with the right line up of products and services can save investor time, money and headaches.

One of the first things a potential new online broker account holder needs to evaluate is their needs. Think about what is important to you as an investor while comparing the online broker features and services. The best online broker for one investor will generally not be the best broker for all types of investors.

Some of the key features to look for in an online broker include the following:

Review the broker commissions and fees. Broker commissions can vary in the amount per transaction based on a number of different factors including the number of trades that an individual conducts. Review the costs based on the amount of trading you intend to engage in. Commissions are one of the primary reasons that investors use online brokers and are a normal cost of investing, but unnecessary fees or high commissions is just going to eat into profits.

Check the online broker customer service. Check to see what other options the firm offers for placing trades. At some point it will be important to be able to talk to an actual person on the phone. For some investors this is more important than others, but the chance of never needing customer support is rare. Another important aspect of customer service is whether the online broker offers broker assisted trading, should that service be needed. Be sure you select a broker who offers a sufficient amount of phone support.

Make sure the web site is easy to navigate. For the online broker and investor, the web site is the key tool and it should be easy to use. Most transactions conducted by online brokers are online which allows investors the ability to make trades quickly and efficiently, an unruly web site will quickly defeat this purpose.

Depth of investment product selection for trading is always important. Check to see what investment products are available through the broker. Along with stock trading, most online brokers now offer the ability to trade options, bonds, ETFs, a wide range of mutual funds, foreign stocks and more.

Review the research options and other tools available to traders. Some research tools can save an investor time and money while some options may be more or less distractions. Selecting an online broker that provides research information and has a wide assortment of educational tools and other options will often allow the investor more opportunities to diversify and grow.

Check to see how much is needed to open an investment account. Most online brokers require some sort of minimum deposit to open an account that may often depend on the account type. Some firms have no minimum requirement to open an account. Others can require a deposit of $1,000

Finding the right online broker to fit your needs doesn’t have to be a chore. In the search for the best online broker, take a little time to review the costs and key features that match your needs before opening a new account. Online brokers can provide an efficient and effective means to invest and diversify an individual’s financial holdings.