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here are some must know tips on selecting the broker that’s right

The unstoppable emergence of the internet into the mainstream has turned the stock option trading and investment industry on its rather giant head.

Today, with such a plethora of online broker choices, we can happily weave in and out of stocks, bonds, options, funds and more with sublime ease and convenience. And our pockets are barely the lighter for the experience.

Tips On Choosing A The Best Stock Option Broker Possible


It was not always so, with broker transactions requiring a distinctly human touch before the internet just sort of turned up in all our lives. Let’s have a really quick history lesson. In the “olden days” you would need to call a broker to place a trade order, and often the norm was for the broker to provide advisory services. While it all sounds quite warm and fuzzy, the industry earned a reputation for being somewhat waspish with high broker fees and biased advice that bordered on the downright conspicuous.

There was a famous Woody Allen quote which summed up rather neatly the suspicion and cynicism with which old school stock brokers were once considered – “A Stockbroker Is Someone Who Invests Your Money Until It’s All Gone!”.

I’m happy to report, it’s quite a bit better now. Why? Simply, the smaller investor has gained power and control over every aspect of their investment activities. We enjoy more investment choice than ever before. We can tap into both domestic and foreign equities and investments. And, rather deliciously, we can do it all for a few bucks a time with a broker who is essentially an obedient robot and who wont try to flog us lousy stock. There’s no looking back.

However, as with many things in the world, the cheapest choice of online broker is so often not the best one. And doing your due diligence on a myriad of key broker features will just ensure that you pick a supportive online broker who lets you get on with the job of growing your wealth and is only about when you need a little help.

So, before you so much as type in the “O” on your search for “online broker” on Google, here are some must know tips on selecting the broker that’s right for you:

6 Tips On Choosing A The Best Stock Option Broker Possible

  1. Bigger Brokers Tend To Be A Safer Choice. Before you retort with “Oh yea, what about Lehmans?” – the fact remains that the longer a broker has been around, the more safe your money is likely to be. Look out for a good, industry leading brand name which has a good reputation.
  2. Excellent Support. Don’t compromise on this part. There are numerous things that could, potentially, mess up when you trade online. Systems glitches, account issues, price slippage and more. Good, timely support is important should you face issues, and not all online brokers provide the same value in terms of support.
  3. Sniff Out Frequent Trading Deals. If you intend on trading a large volume, consider tapping into frequent trader deals that some online brokers offer. Your commission charges can become rather expensive if you trade in volume, so getting the best possible broker deal is paramount. Or it will eat into your trading profits.
  4. Access To Good Online Tools & Research. The proliferation of online brokers, all vying for your business has delivered more than just cost savings to the investor. Now days you can expect an impressive range of investor trading tools, learning tutorials and more all for free. Once upon a time, you would have had to fork out a pretty penny to access such expansive and sophisticated trading tools and information.
  5. Search Stock trading and Investment Forums. These are often awash with broker tips, and you can usually find the latest broker deals for new sign ups.
  6. What Level Of Service? While we’ve focused on the mainstream “execution only” online brokers there are other tiers of brokers who provide additional support and services. For example, you could opt for a “Full Service Broker” who provides stock recommendations and can help advise you on your whole portfolio. This may suit those investors who aren’t particularly inclined or experienced to invest their own wealth.

If you ask most experienced investors who remember the BAD old days, they’ll probably tell you – as far as picking brokers and the sheer ease and abundance of investment opportunity is concerned, us lot have never ever had it quite so good. Or cheap

Limiting your trading investment risks with stock options

Unlike buying individual stocks, buying stock options don’t give you ownership of a piece of the company whose stock you’re buying an option on. In fact, the company wouldn’t even know you bought either an option to buy or sell their stock. You just buy a legal right to buy or sell a stock at a specific price before a certain date (the option’s expiration date). Options merely give you the right to do something. 

They don’t force you to either buy or sell. The great thing about stock options is that they don’t require you to pony up the whole price of the security you’re ‘betting’ on. In fact, the amount you pay just for the right to either buy or sell is much lower than the actual price of the underlying stock. Options come in two forms: call options and put options. Put options enable you to sell a stock at a specific price. Call options do the reverse-they enable you to purchase a specific stock at a specified price.

How do stock options work?

Stock options are strictly done between the investor, a market maker, and the other investor who wrote the option. Investors can promise to buy or sell stock at a certain price before a certain expiration date. The moment the investor does this, an option investment security is created, which can then be sold by the market maker to another investor. Essentially, the exchange is a bet: in a call option scenario, the investor who writes the option to sell the stock at a certain price is betting that you won’t buy the stock before the expiration date, and he gets to keep your money. You, on the other hand, hope that the stock’s current price keeps rising so you can buy the stock at a nice discount. Of course, you have to factor in the amount you paid for the option. 

This is called a premium and you have to make sure that you only exercise your option to buy or sell once you factored in the premium price despite the stock’s depreciation or appreciation. You wouldn’t want a situation where you pull the trigger too early and exercise your option only to walk away with a net loss. As you can probably already tell, investing in stock options is all about timing.

The advantages of options

The great thing about stock options is that you can easily sell your option if it is clear that the option is a winner. There is a ready market for options. They are very liquid. For example: if you buy a call option to buy the stock at 20, and the stock has hit 40 several weeks before the expiration date, your call option is a winner, and you can sell it easily for a nice profit. And you are able to do all of this without plunking down a huge amount cash. Compare that with buying the actual stock you got the option on. 

You invest less money, but you still get to ride the stock’s action. Another key advantage to stocks is that it also enables you to have a form of insurance over stock you own. You can buy put options on stock you own. This means that even if your stock tanks, you can exercise the put option and recoup your losses (after you factor in the premium you paid).

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