Home | Work & Business | Investments & Stocks | Brokerage | What Is an Online Brokerage Account?

What Is an Online Brokerage Account?

by Faith O

Overview

Online brokerage accounts are discount accounts that allow individual investors to participate in the stock market without actually going through a human stockbroker. They have given individual investors the opportunity to be in control of their investments. These investors are able to buy and sell stocks and other securities without contacting their brokers, if they choose not to, all with the click of a mouse. There is a host of online brokerages to choose from and they are all relatively inexpensive.
Types

There are various types of brokerage accounts. Some require a minimum amount to open an account others do not. Some, like the one from Schwab, come with a free no-minimum checking account from which you can make transfers to your brokerage account when you buy shares (see Resources). Some are share-based (you buy a specific number of shares of a particular stock) and others are dollar-based (you invest a specific amount and it is spread over a specified number of stocks). ING's Sharebuilder is an example of a dollar-based online brokerage.

Cost

Online brokerage accounts typically have monthly fees below $20 and with some brokerage accounts the fees depend on the number of trades you make a month. It costs between $4 and $20 for each sale or purchase of stock.
Significance

The main significance of the advent of online brokerage accounts is the freedom it gives to investors and the access it affords even the small investor. In the past you had to have saved a lot of money to be able to open a brokerage account with an actual broker and you did not have much control over your investments. Now anybody can open an account with the abundance of no-minimum options and invest very little amounts periodically.
Automatic Investment

Many brokerage accounts provide the option of automatic investments. Sharebuilder is a good example. With the standard account option you can make six automatic trades a month for a $12 monthly fee after having chosen the stocks you would like to invest in and linked your brokerage account to a checking account. Funds will then be withdrawn from your checking account each month and your investments will be made automatically.
Expert Insight

The key advantage of investing in the stock market is to the ability to own pieces of different companies and watch them grow over time through the magic of compound interest. Financial experts agree that one of the best ways of doing this is investing for the long term. This is especially advantageous for the small investor who puts aside a modest amount of money each month.These are the investors who have gained the most from discount online brokerage accounts.