Online Brokers vs Traditional Brokers

by Investing School on August 7, 2009

An online broker is very much like a traditional broker, at least in the services they provide at a basic level.  Like a traditional broker, an online broker is placed in charge of completing trades on behalf of an investor.  The broker then makes money through commissions earned by completing the transaction.  An online broker, however, performs these services with minimal direct contact to the client, whereas the traditional broker tends to be free for more interaction.

The biggest difference between a traditional broker and an online broker can be attributed to the fact that an online broker offers Internet access (or other electronic access) to the clients’ accounts.  This computerized access can provide up-to-date market information to the clients, allowing individual research and tailored details for their investment interests.  Additionally, through working with technology, online brokers are able to circumvent the additional costs that are inherent to dealing directly with the major stock exchanges.

When dealing with an online broker, clients are not able to speak directly with a person regarding their trading.  As a trade off, however, the commissions paid to online brokers are often considerably lower than those charged by traditional brokers.  A client who is new to investing, or who requires significant individual support in their investments, may find that an online broker is too “hands-off” for their needs.  On the other hand, online brokers offer considerable research opportunities for experienced clients, and can certainly save significant amounts of money through the reduction of fees.

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