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Online stock investing has become the staple of the investment arena. There are some key considerations to keep in mind when selecting the right online broker for you. Since I pretty much exclusively invest in resource stocks, most of which are on Canadian exchanges, these considerations have that objective in mind. So whether you want to purchase a silver ETF or a rare earth metals play, these tips will help.
Online Stock Investing And The Fee Factor
While the convenience of trading online is huge, a lot of people opt for online stock investing for the discounted trading opportunities. As you might expect, the fees vary widely from one to another. This is true even among the most widely known online brokers. While most of the more popular brokers do not have any annual maintenance fees, one of the fees that can snag you is if you want to talk to a live broker by phone. At last check, TD Ameritrade wanted $45 to place a trade with a broker. Fidelity and Charles Schwab weren’t too far behind, coming in at around $33 or $34. Even the famous $7 Scottrade commission goes to $27!
Another big fee factor is the one that crops up when it’s time to buy on a foreign exchange. TD Ameritrade doesn’t even let you buy stocks listed on the Canadian exchanges. But when you can, the various fees are worth paying attention to. In some instances, the discount broker will actually purchase shares from bulk traders. When that happens, there is a premium to be paid as Canadian dollars are converted to U.S. Dollars first. This is referred to as the spread. You’ll still have the discount broker’s fees too.
Online Stock Investing – Full Service?
If you’re just starting out with online stock investing, a big question to answer is whether you want to go with a full service broker. Although it will cost you more to do so, the additional assistance could prove well worth it at times. The important thing to consider is often not what the cost is, since all full service brokers will charge between about 2 and 5%, but rather what you get for your money. For instance, Charles Schwab has a pretty good infrastructure for those who want to do international investing. This is key for tapping the Canadian Exchanges if you want to invest in the best resource stocks in the world directly.
On top of that, you want to think about how well someone understands your particular objectives. International investment expertise and ease of use are nice, but you may be concentrating on a sub-niche, and perhaps there’s an even better fit. If you are focused in the resource sector, keep in mind that there really aren’t that many people who thoroughly understand this investment class well.
So, when you come across a full service brokerage such as Global Resource Investments, this can be a breath of fresh air. These folks specialize in resource investments, so they better understand your objectives. If you think you’d be better off with the help of a full-service broker, the point is that the price may not be as important as the skill set of the people you are working with.
Online Stock Investing And Accessing Foreign Markets
Sometimes you’ll discover that your online broker displays foreign stocks, such as Canadian resource stocks, with the five-letter symbols. The reason for this is that there is some overlap between Canadian stocks and U.S. stocks. Using the longer symbol avoids the confusion that would arise using a symbol that depicts a stock on both the American and Canadian exchanges.
Another thing to keep in mind with online stock investing is that there are a number of ways to tap foreign markets. You can do so directly, and you can even have an account denominated in the native currency where the exchange is located. However, you can also tap into these companies by way of the Pink Sheets in the Unites States. Some people advocate against these for liquidity reasons or large bid-ask spreads. Buy I’ve used limit orders and never had a problem.
Online Stock Investing When It Comes To Accounts For Business Entities
There are special circumstances that you may run into if you want to conduct your online stock investing in the name of an entity. If your account is in the name of an LLC or corporation or a trust, good for you. This level of estate and tax planning is brilliant, and will pay huge dividends in the long term. I do this myself. However, in the short term you could get frustrated.
For instance, when I was first starting out, I wanted to use E-Trade to tap the Canadian Exchanges. E-Trade was touting its access to a global marketplace, so I figured it should be pretty easy. I contacted them, told them my intentions, completed an application, and initiated an account. However, I was unable to access the foreign exchanges. I was told that was yet an additional application that “expanded” my account to give access to foreign exchanges. So be it.
Long story short, the bottom line on that story is that online stock investing with E-Trade only supports these international accounts with either joint or individual accounts. If you want to do a ROTH or a joint account with your spouse, you are welcome to apply. Business entities have to go elsewhere. Despite my diligence and careful instruction, I wasted a lot of time on this useless process. Just know this could be a snag and seek out more sophisticated brokers who can accommodate your level of business engagement and online stock investing needs.
