Trading In Stocks without a Broker

By Investor / Published on Monday, 13 Feb 2017 23:09 PM

So you’ve saved some money and are ready to join the stock market without the help of a broker, where do you start? There are two types of traders: those trading in the long-term and day traders. Day traders take advantage of the fluctuation of stock prices within the day to make quick profits. Day trading is risky for amateurs but potentially profitable for those who know what they are doing. Long-term traders rely on the value of companies and trends to make profits over long periods of time. Now that you know what kind of trader you are, how do you trade without a broker?

  • Use Direct stock purchasing plans

This is a service offered by some companies that enables individual investors to purchase stock from a company or through a transfer agent representing the company. Not all companies offer this service and it would therefore be important to find out before beginning this process. This method eliminates the commissions and brokerage fees associated with using a stock broker thus making it a cheaper model. As most of these are offered online , they are also considered easy to access. All one has to is find the listed information of a company and make contact. It should be noted that all the risk involved in trading in stocks still holds true with this plans.

  • Use Dividend reinvestment plans

This is an investment service that enables an individual to automatically purchase stocks using the dividends they receive from already owned stocks. The fees charged for this are considerably lower than those charged by a broker. This plan uses the concept of compounding interest to considerably raise the value of one’s portfolio over a long period of time. There are variations of this plan depending on the company in question.  An example of such variations include partial enrollment and full enrollment. In partial enrollment part of an investor’s dividends are automatically used to purchase more stock while the rest is paid out to the individual. Full enrollment automatically uses all the dividends of an investor to automatically purchase more stock. Research must be carried out adequately to minimize one’s losses. The biggest advantage of this method is that the average stock  price is optimized over  time. The client doesn’t end up buying too many stocks at a very high price or too little stocks at a low price. Another advantage is the increased dividends one receives by owning more shares.

  • Use Periodic payment plans

This method requires an investor to make contributions of a certain amount over a period in return for shares in a mutual fund. Investors are initially not allowed to make withdrawals and can only make contributions. If one needs to make a withdrawal before the stipulated period, an expensive punishment is implemented. This plan is most suitable for people looking to make long-term investments.

  • Use an online brokerage firm.

 Unlike a human broker, online brokerage firms use algorithms to facilitate trading of shares. Computers and software take care of most of the trading activity thus evening the playing field for amateurs. None of this matters though if you don’t do the proper research before buying and selling stocks. Some popular examples include: TD Ameritrade, E*Trade, Options House, Trade King, and Scottrade. It would be wise to compare the various fees and commissions charged to get the most value. Some online brokerage firms give research tools that could potentially enhance your trading experience.This method is especially popular with day traders because of its speed of execution.