If you are interested in investing and trading, you most probably asked yourself the question: Where should I buy? In this article, we summarize the best options for you.
Where to buy and sell stocks
1. You can buy stocks with or without using a broker.
2. The most common way is to buy stocks through an online brokerage.
3. The simplest method of buying stocks without a broker is through a company's direct stock purchase plan (DSPP)
An online broker is a financial company that helps you buy and sell stocks and other assets, generally through trading platforms. Today, many online brokers offer commission-free trading, with free tools and screeners, making it easier than ever to trade stocks on your own.
You can differentiate between brokers based on the services they provide, such as discount brokers or full-service brokers. Brokers also differ based on the products they offer, i.e. stockbrokers or forex/CFD brokers.
Where to buy and sell stocks
Direct buying or through a broker
When it comes to stocks, you can invest via either of the following two methods:
- through a brokerage account or
- through a direct stock purchase plan from a company.
Let's look at both is a bit of detail.
Buy stocks through a broker
Before discount brokers and commission-free trading - or even, digitalization - working with brokers was the privilege of the well-off. You probably remember all those movies where people are shouting in their phones in packed offices, swearing, and sweating.
Of course, in movies, this is overdramatized, but the core workflow was close to what was represented in Hollywood. You had to call up a representative, who would connect you to a seller or buyer. This has changed dramatically with the rapid expansion of digitalization and the internet. Today connecting a buyer to a seller is done digitally, by computers and algorithms.
The past decade has been about online brokers. However, choosing a suitable online broker is not an easy task. It is really hard to navigate between all the options without proper expertise.
Definition of brokers
In the world of trading, a broker is someone who connects active traders (e.g. a seller with a buyer) and organizes the trade for a commission. Generally, when we talk about brokers, we mean the ones working close to famous trading floors, like NYSE, NASDAQ and LSE.
For retail traders, it is really difficult to gain access to a trading floor. It is costly, complex, and requires expertise. Only experts and major brokerage firms meet the requirements.
What exactly are these requirements? For example, a seat on the NYSE trading floor costs between $4,000 - $10,000 which is way out of reach for retailers to access.
Also, you'd need a license to act as a broker-dealer from the Financial Industry Regulatory Authority (FINRA) in the US to have access to these markets.
So brokerages - especially online brokerages - act as intermediariesthat connect trading floors and retailer investors.
They have access to the trading floors around the globe and they let you trade on these exchanges for a certain fee. They'll forward your order request to the exchange and grant you access to the product you wish to buy or sell.
Given the continuous expansion of digitalization, an online broker could be an inexpensive alternative for someone who wants to trade and invest in stocks, forex, bonds, mutual funds or other products.
How to buy stocks without a broker?
Often, the simplest method of buying stocks without a broker is through a company's direct stock purchase plan (DSPP). Trought DSPP as an individual investor you have the opportunity to purchase stocks from a company. Not all companies offer DSPP.
Where can I buy stocks without a broker?
Companies that offer DSPPs usually cite information about the plans on their websites, under the investor relations, shareholder services, or frequently asked questions (FAQ) sections. Here, you will find details about account minimums, investment minimums, any fees applicable to their offerings, trading details, and the like.
Advantages of Direct Stock Purchase Plan
The main advantage of buying directly from a company rather than a broker is that these plans often have very low fees (and sometimes no fees), which makes DSPPs an inexpensive way for first-time investors to enter the financial markets.
Disadvantages of Direct Stock Purchase Plan
An investor with a brokerage account and an investor with a direct stock plan could buy the same "company" stock at the same price, but the investor with the brokerage account could also acquire any other securities by the brokerage services.
In the past, direct plans were commission-free or low-commission trades, but this benefit has mostly vanished.
It's now just as cheap to get stock through one of these commission-free brokerages as it would be to buy through direct plans. In some cases, using a commission-free brokerage might be even cheaper.
DSPPs can also impede your ability to time trades. Cashing out your position isn't as simple as tapping a few buttons on an app. That is fine if you plan to buy and hold your stocks for decades, but a trading strategy like day trading (daily buying and selling stock) makes it nearly impossible.
If you trade often and enjoy regularly rebalancing your portfolio, on the other hand, you might be frustrated by the limitations.
Where to buy and sell stocks
How do brokers differ by service?
Buying stocks with a full-service broker
Full-service brokers are what some people visualize when they think about investing—well-dressed businesspeople sitting in an office and chatting with clients. These are the traditional brokers who will take the time to get to know you personally and financially.
These brokers can not only help you with your investment needs but also provide assistance with estate planning, tax advice, retirement planning, budgeting, and any other type of financial advice—hence the term “full service.” They can help you manage your short- and long-term financial needs.
Full-service brokers are more expensive than discount brokers, but the value of having a professional investment advisor by your side can be well worth the additional costs.
Advantages of full-service brokers
Full-service brokers most of the time offer high-quality investment advice. They can help you manage all of your finances. Clients of full-service brokerages appreciate the convenience of having a personal broker handle all their investment needs. All full-service brokerages provide physical office locations for clients to visit.
Disadvantages of full-service brokers
In terms of fees, full-service brokers are more expensive than discount brokers. Those who take advantage of management services often pay a percentage of their total assets in fees each year. Typical full-service offerings are priced from 1% to 2% or more.
The minimum deposit is also much higher than at a discount broker, but the actual amount differs a lot from one broker to the other.
In terms of trading options, most of the time day trading is not available.
Buying stocks with an online/discount broker
An online broker is a financial company that helps you buy and sell stocks and other assets, generally through trading platforms. In exchange for their services, brokers charge a fee, also called a commission. The size of this may differ greatly from broker to broker. There may be a fixed flat fee after each transaction or a percentage of the value of the transaction, or a mixture of both.
If you want to invest in stocks, going through an online broker is the simplest and most cost-efficient way. Of course, it is also possible to walk into your local bank, where you have your bank account, and buy stocks there, but this is usually slower and costs more. Today, there are many very good, safe online brokers that offer services at attractive prices, so we recommend that you choose one of them.
Advantages of online/discount broker
More control and flexibility.
Option to monitor investments in real-time.
Disadvantages of online/discount broker
No personal relationships with brokers.
These are the best online stock brokers.
Answering 5 questions we will give you the best online stockbroker suiting your needs. Find my broker
Where to buy and sell stocks
How do brokers differ by products?
Let's see how can we categorize brokers by their products.
Generally, brokers can be put in 2 main categories:
The term stockbrokers may refer to the brokerage firm itself, or to the employees of such firms. They handle order requests - transactions - of individuals, and institutions.
These transactions mainly aim but are not limited to stocks, ETFs, options, mutual funds. Some brokers have other derivatives, like futures, CFDs, and also forex.
Of course, there are multiple aspects of stock trading, and it is really hard to define them to new investors, but the quickest we can put it: these brokers specialize in stock investments and offer trading opportunities with alternative "real" underlying assets.
To provide this, brokers need access to real markets/ real stock trading, which requires them to have stricter regulations and a great deal in liquidity. This means, these broker giants often have entities that are regulated by multiple regulators.
Some of these brokers have long track records, being in business for around 20 years offering their trading services - and recently, an online trading platform. Think of Interactive Brokers, Saxo Bank, Swissquote and so.
Stockbrokers don't have to be "old" to qualify as one. Newcomer brokers offering individual stocks can also be categorized as stockbrokers, like Freetrade, Alpaca Trading, Robinhood etc.
Usually, these brokers charge a fixed commission per each completed trade on their trading platforms, however, the fee structures vary between investment accounts. Some brokers charge fees after trading a few times, some charge as a % of the trading value.
There are also brokers with a subscription-like structure.
Since 2019, there's been an emerging trend in commission-free stock trading aiming at retail investors. Plenty of brokers switches to these models to better acquire new customers. Often, they are paired with the option to trade fractional shares.
There's something for everyone - for example, if you'd like to trade with bigger exposure, you can apply for margin accounts on an advanced trading platform to do futures trading or anything you like.
The term CFD/Forex brokers may refer to firms that mainly deal in derivatives and forex. They are intermediaries between the clients and the markets. The difference is, that a trader in contract terms with the broker itself, and can realize profits from the price movements of the real underlying. CFDs can be stocks, commodities, indices or even crypto as well. +
The best we can sum these services up CFD/Forex brokers are usually cheaper services offering only CFDs and forex to trade. Some services offer real stocks as well, but only on the US markets, for relatively low fees. They only have a few entities, regulated by one top-tier regulator.
For higher exposure, they let traders use leveraged trading. The level of leverage is dependent on the broker. For example, an active trader at service may change the leverage to 1:1 if they have such a trading account.
There are also services that have fixed 5:1, 25:1, 50:1 leverage, which is highly dangerous for beginner traders and their investment goals.
This doesn't mean that CFD/Forex brokers aren't reputable, or trustworthy services. There are bad stockbrokers, and many good CFD/Forex brokers. Good CFD/Forex brokers with a long track record and high reputation include IG, XTB, CMC Markets and eToro.
Apart from CFDs, these brokers specialize in forex trading and costs are usually charged on a spread basis or as a % of the trade value.
Are crypto service exchanges brokers?
The short answer is: not. They provide access to their own markets and they are not as tightly regulated as brokers are.