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Investing For Dummies®, 5th Edition by Eric Tyson, MBA

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Chapter 9. Choosing a Brokerage Firm

In This Chapter

  • Understanding the different types of brokerage firms

  • Shopping for a discount broker

  • Surfing for an online broker

You can invest in most securities — such as the stocks and bonds that I discuss in Chapters 4 through 7 — on your own, without using a broker if you buy mutual funds direct from fund providers. But someday, you may need brokerage services. Brokers execute your trades to buy or sell stocks, bonds, and other securities.

Consider setting up a brokerage account for one or more of the following reasons:

  • If you hold or invest in individual stocks and bonds

  • If you seek to invest in and hold mutual funds from a variety of fund companies through a single account

  • If you want to invest in newer exchange-traded funds (see Chapter 8)

  • If you desire to have an account with unlimited check writing (possibly as a replacement to a local checking account)

In this chapter, I explain the ins and outs of discount brokers and online brokers to help you find the right broker for your investment needs.

Getting Your Money's Worth: Discount Brokers

Prior to 1975, all securities brokerage firms charged the same fee, known as a commission, to trade stocks and bonds. The Securities and Exchange Commission (SEC), the federal government agency responsible for overseeing investment firms and their services, regulated commissions.

Beginning May 1, 1975 — known in the brokerage business as "May Day" — brokerage firms were free to compete with one another on price, ...

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