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Author: megeranski Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 50191  
Subject: New FAQ!!! (in all it's flawed glory!) Date: 4/2/2000 12:09 AM
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The Discount Brokers FAQ -- Why? Because...
  
"It's Foolish to let people think they can answer their own questions"
-Lloyd Broggini



HOW THE FAQ IS ORGANIZED:

I. Criteria For Choosing The On-Line Broker of Your Dreams!!! -
"OH, I wish I had read this first!!" To prevent yourself from ever having to utter
these sad, sad words, read this list of criteria first. Grab a pencil and paper,
take notes. You'll be really really glad you did! Promise!

II. What You Should Read First -
• a collection of some of the best background information on the subject, as well as
• a great list of links to places that have reviewed and ranked the On-Line Brokers, and
• a couple of links to some comprehensive lists of ALL the discount brokers

III. Other Essential Schtuff -
a collection of TMF and non-Motley Fool sites that offer
various helpful advice on various subjects -- you know, the stuff that didn't fit
any other category! Some of it you'll want to read now, some
you'll want to come back for later. Either way, it's good to know it's there!


Acknowledgements and author's notes:
Thanks eternal to Dave Goldman, the first to organize and offer a FAQ,
and to Phoolish1, another tireless FAQ contributor whom I admire -- in their
fine traditions I humbly present the Unauthorized Discount Brokers Board FAQ.
(to be updated occasionally, whenever work, play and feline
demands are not too overwhelming.)


So, here are some great advice and great links, provided by
those wonderfully helpful folks who frequent this board:



I. Criteria For Choosing The On-Line Broker of Your Dreams!!!: Frequently Asked Questions, and perhaps some that you wished you had asked!!

***How do I choose the best broker / Which broker is the best?
STEP 1: This sage advice from Dick Smith, a regular (and very Foolish!) poster to this board -- no one says it better!!:
"General advice to anyone searching for a broker: Go back and read several weeks
of posts. I know that's a lot of reading, but you're making a major decision here;
while it's possible to move accounts between brokers, it's a pain, and you can lose
the ability to make transactions while your shares and funds are in transfer limbo.

Once you narrow your choices, you can use the search feature to find messages
about the broker you're considering. Of course, there will always be some unlucky
person who has had trouble, and you can be sure they're going to post. Read a
bunch of postings to get an idea of the trend.....

And don't forget to come back to this discussion, and give the next newbie the
benefit of your experience."

STEP 2: Grab a pecil and paper and glance through this list of criteria for chosing an OnLine Broker. Some of these will be important to you, some won't, but either way, you'll want to know the answers based on your personal situations and needs before choosing:

*How Many Trades Will You Be Doing Weekly/Monthly?Yearly?
This seems to be the very first question. If you want to trade often, and in the blink of an eye, you should go to the Day Traders board and check with them. Most people on this board trade only once a year, some folks a little bit more often. If you want to do some truly active trading, the information you find here may not satisfy you.

+++*How many shares will you be trading at a time?
If you plan on trading 100 or 500 shares at a time, check the broker's commision schedule for this number of shares. The lowest rate offered (perhaps the one you saw in the ad) is sometimes reserved for trades of over 1000 or 5000 shares at a time. Also, stocks priced under $1 a share often carry a higher commision (do you really want to dabble in that type of investing, anyway?????!!!!)

+++*How much do you have to open your account? How do I get the money in the account?
Some brokers require no money to open an account. Okay, but, well, what are you going to trade with? For the Foolish 4 model(s), most folks agree the smallest amount is around $2000. Whatever strategy you use, be sure your commision doesn't eat into the profits. And brokers have their requirements for trading -- typically 15% - 50% -100% of the total cost of the trade has to be in your account. A recomended commision percentage is 3 - 5% of the trade. Another thing to pay attention to is how to get money to your account. Will you need to wire money? How much is that, then? How long will it take the broker to cash your check and have the funds ready for deposit? And, (it surprised me to find out) most brokers will not accept traveler's checks. Most firms want a personal check, if you use the mail. Interesting.

+++•Who is the most reliable -- I want to make sure I can place my trade anytime I need to.
Most folks are really asking about equipment failures, or about times when you can or cannot access the broker's site cause everyone else wants to trade that day, too. "No one has unlimited capacity," says Julio Gomez, president of Gomez Advisors, a leading source of rating online broker services. So you may want to consider opening a second account with a different online brokerage. think about having a second account with a lesser-known, smaller, less heavily trafficked brokerage. This will also cover the issue of a site being unavailable due to some technical problem on their end. You'll have come up with your own solution!! Or, as Gomez says, "You need your own excess capacity until they get theirs."

+++* Who is the most reliable -- I want to make sure my money is safe.
You'll need to check to see who's insured. Just like the banks, brokerages carry insurance for their customers. And nowadays, many firms are buying other firms, so keep on top of this if your brokerage gets bought up by another one. You may also feel more comfortable with a brokerage based in your own country (several big name brokerages are based in Canada -- a fact most folks don't seem to worry about).

+++*Have you considered having some Alternative Trading Methods ready?
Yes, we are here to trade on the internet, but you might be happy to have a back-up method just in case. It might cost more, but if there is a critical trade that needs to take place, you'll be happy to know you can use your phone handset to punch in a trade, or use the archaic method of talking to a flesh and blood broker. These methods may be the exception for your trades, but some day, you may be might glad to have these options at your disposal.

Also, remember you can place your orders at night, when other folks are watching NYPD Blue reruns. If this option appeals to you, log on during low demand times and just put in a limit order (a type of order that sets the exact price at which you want to buy or sell) with the expire time for the order (usually one day or forever), and brush you teeth and jump into bed.

+++* How can I guarantee top speed from the internet when I want to trade?
When slowdowns occur, it's pretty hard to know if the slowdown is with the internet in general, your broker, or your own modem, perhaps, or whether to look to your ISP for the problem.

So, starting with your ISP: make sure you choose one that will perform well in times of peak demand. If you are sincere and crazy about internet trading, you may even want to consider having an account with two ISP's.

And look at your own PC. It may be time for an upgrade for better performance, but again, perhaps not if you are doing long-term buy-and-hold. :-) (My computer is a tad on the slow side, and I don't sweat it a bit!!)

There are new ISP technologies everyday, it seems. you might find a wireless provider, or a calbe provider in your area that offers zippy speeds.

And, with your broker, there are sites that rate the average access/transfer speed of different brokers. (I'll try to provide a URL here when I find one :-) ) And, most important, unless you are willing to invest big bucks in a day-trading type set up at home (hop over to the Day Traders board), just know that you May Have To Wait sometimes. The internet is new, it has problems. It is a minor miracle that we have the technology to trade online at all!! :-)

+++*How Important Is Customer Service? Does it need to be 24-hour service?
Extended trading hours may change your answer to this, so think carefully. And some of the readers of this board are not in the continental US. For some, this is not critical. For many others, it is.
How does the customer service treat you? Do they answer the phone before 50 rings?

*What about e-mail customer support?
This can be critical for some folks. Give it a test, see how quickly they respond. Read what others have to say about this often-critical means of communication.


+++*Consider Your IRA - Many Brokers Charge For This - Do You Care?
(And other fees, too)

Some brokers charge an annual fee, others a fee to set up or move and account. Best to be aware of these charges before signing up! Note that usually there is a charge for closing the account (transfering to another broker), and for having shares put in your name (if you want to set up a DRiP, for example). Look at these charges closely. And even then, be aware that brokers can change these at any time. (the broker I went with recently started charging to transfer shares to my name!! darn!) Bottom line, just know that anything above and beyond exectuting a simple trade will most likely cost ya!

*Do You Need A Broker Just For Stocks? Or Will You Be Trading Bonds, Mutuals, etc.?
Make sure your broker is able to trade what you're interested in! And notice that some brokers restrict some internet stocks due to extreme volitility in their price. This may not affect you, but you don't want an ugly surprise in that area, right?

+++*What about Money Markets and Money Market Sweeps.
Some stocks pay dividends, others don't. Either way, what happens to that money? Does it get reinvested into your stocks, or merely plopped into your money account? Which do you prefer? And know how much interest they pay on your money that is sitting there. Check into their costs for checking? Is it free? Are you restricted to how many checks a month you can write? Is that ok?

*How Liquid Will Your Money Be?
What happens when you want to get cold hard cash out of your investments? Do you have to formally request it and wait several weeks, or can you just write a check? If so, how many checks a month? Find out the details!!
http://boards.fool.com/Message.asp?id=1040005003715002&sort=id

*A Local Office Is Very Nice.
http://boards.fool.com/Message.asp?id=1040005003715005&sort=id

*Do You Care If Your Broker Offers DRipS?
http://boards.fool.com/Message.asp?id=1040005003747000&sort=id

*Does It Matter To You How Detailed Your Monthly/Year-End Statments Are?
http://boards.fool.com/Message.asp?id=1040005003736000&sort=id

*Do You Need To See Your Account Updates In Real Time, or is Next Day Updating OK?
http://boards.fool.com/Message.asp?id=1040005003770000&sort=id

*Do You Need Real-Time Quotes, or are Delayed Quotes OK?
Some brokers offer real-time quotes, but charge for them. Some only offer delayed quotes. Do
you really need real-time quotes? (Most folks on this board agree that no, you do not need this from your broker. Just head on over to http://www.realtimequotes.com , sign up (it's free) and boom -- there ya go!)

What about other research tools?
Will you use them? Are they available for free on other parts of the web (in most cases, the answer is yes (see above). Look around and decide which research tools you'll even use, then find out if they are available on the web for free (and often on stand alone sites, it's faster) and then look at how much in per trade commisions these tools are worth to you.

*Will You Be Using Margin on Internet Stocks?
Some Brokers Won't Allow Margin on Specific Stocks. Check First if This is Important to You!!!!! And be aware that they may not open a margin account to you if your credit report is in shambles. And be sure to figure in the interest rate you pay for this service when you are thinking of making that Margin trade!

+++*Know the jaron, the lingo, the language.
There are some links below that discuss Limit orders, Market orders, etc. Know the difference. Know what a GTC (Good Till Canceled) means. And, a Stop order can be very useful. Know about them and find out whether your broker allows you to do one online.

+++*I'm a little leary of taking that big step! Help!
Most sights offer a simulation/tutorial. Take the time to go through a couple. Get comfortable, be able to anticipate the questions each trade requires. See if you like the look and feel of a particular site.

*Is Ameritrade/Suretrade/Waterhouse/ Fill-In-The-Blank the best broker?
The Motley Fool provides facilities for searching the message boards and the web pages. (Wink, wink. Nudge, nudge. Know what I mean?) Check the bottom of just about any page on the site for the word 'Search'. Type in the name of the broker, tell it you just want it to check THIS board, and let the wonders of modern technology do the work for you. Afer you have enjoyed strolling through those messages, come back and ask SPECIFIC QUESTIONS - general, vague, undefined questions are a sure sign that you did not do your homework, and an invitation to being ignored.




*** II. What You Should Read First: Discount Brokers:Links:All ***

*SmartMoney's article on trading on-line. Read This First! it could save you a lot of pain down the road!!
http://www.smartmoney.com/si/brokers/online/index.cfm?story=kit

*Yahoo's list of all On-Line Discount Brokers' web sites
http://dir.yahoo.com/Business_and_Economy/Companies/Financial_Services/Investment_Services/Brokerages/Online_Trading/

*OnlineInvestor.com's list of all On-Line Discount Brokers
http://www.onlineinvestors.com/brokers/html/brokerlist.html


*** Discount Brokers:Links:Comparisons of Discount Brokers ***

*CyberInvest's ratings
http://www.cyberinvest.com/guides/brokers.html

*The Motley fools list of links
http://www.fool.com/Media/DiscountBrokerageCenter/Resources.htm

*Donald J's Really Great Site! my personal favorite!
http://www.sonic.net/donaldj/

*Smart Investor: Brokers: The Best and Worst Discount Brokers
http://www.smartmoney.com/si/brokers/discount/index.cfm

*Smart Investor: Brokers: Stockbroker Ratings - including a questionnaire to help you decide just "what are you looking
for in a broker"?
http://www.smartmoney.com/si/brokers/

*Internet Broker SCORECARD: All-Stars
http://www.quote.com/specials/gomez/scorecard/allstar/allstarsumm.htm

*Discount Brokers Ranked
http://www.astro.lsa.umich.edu/users/philf/www/discount.html

*An article from Kiplinger Magazine, dated 10/98, ranking brokers
http://www.kiplinger.com/magazine/maghome.html

*Gomez's rankings--easy to use table form
http://www.scorecard.com/Brokers/

*NASD National Association of Securities Dealers (i think) you have to accept a disclaimer and register first (it's free).
they'll
send a report on the firm you select
http://pdpi.nasdr.com/pdpi/disclaimer_frame.htm

*Nat'l Council of Individual Investors' Discount Brokerage Guide
http://com.primenet.com/ncii/links.html

*OnlineInvestor.com
http://com.primenet.com/ncii/links.html

*Investorguide
http://www.investorguide.com/Brokerages.htm#brokerratings



***III. Other Essential Schtuff -- A collection of TMF and non-Motley Fool sites that offer various helpful advice on various subjects -- you know, the stuff that didn't fit any other category! ***

+++***Why does my broker ask so many personal questions?
http://boards.fool.com/Message.asp?id=1040005006484000&sort=id&Posted=1040005006484001&Rep=True

***Is there a list of Quicken-supported brokers? Is there a charge for this?
http://boards.fool.com/Message.asp?id=1040005003839001&sort=postdate

***I need to convert fractions to decimals and decimals to fractions to place my order. any ideas?
message # 6925, and the next two messages

***What is a sweep account?
message #6879
message #6831 will offer some good info, too


***What about switching brokers? how long will it take?
message #6178

+++*** background info on IPO's - why's and where's
http://www.fool.com/portfolios/RuleMaker/1999/RuleMaker990810.htm

***What are people saying about using Quicken with thier brokerage accounts?
message #6789


***How do I buy stocks on Margin?
message #6956


***Who offers margin for IRA account
message #6966


***Let's talk about Covered Calls!
message #6990 lists other posts that discuss this at length. dig in and enjoy! Be sure to follow this thread, too!


***Should I reinvest my dividends?
http://boards.fool.com/Message.asp?id=1030001003362000&sort=id a brief but helpful thread


***What's the difference between Market Orders and Limit Orders?
message #7218
http://www.fool.com/foolfaq/foolfaq0028.htm
http://boards.fool.com/registered/Message.asp?id=1040005003285000&sort=id

http://boards.fool.com/Message.asp?id=1040005003686001&sort=id


***What are diluted shares?
http://boards.fool.com/registered/message.asp?id=1010001006643001


***What is the difference between 'bid' and 'ask' prices?
http://www.fool.com/FoolFAQ/FoolFAQ0007.htm


***How does after hours trading work?
http://www.fool.com/FoolFAQ/FoolFAQ0003.htm


***Could you explain how options work? http://www.fool.com/FoolFAQ/foolfaq0055.htm
http://www.cboe.com/education/


***Slippage and other hidden costs of OnLine Trading
http://boards.fool.com/Message.asp?id=1040005003689000&sort=id


***How can I specify which shares I want to sell? Can Discount Brokers do this?
http://boards.fool.com/Message.asp?id=1040005003696000&sort=id


***How does a Margin Account work? a detailed answer!
http://www.efmoody.com/arbitration/margin.html


***About insider trading info
http://www.quote.com/layout/index.frames.html


***Gomez's on-line investing primer (partnered with Discover Brokerage)
http://www.quote.com/layout/index.frames.html


***measures access time and %availability for many discount brokers
"The Keynote Web Brokerage Index is the average response time in seconds and the availability rate of accessing
and downloading the home pages of 20 brokerage web sites via industry-standard HTTP (HyperText Transfer
Protocol), the same protocol used by the Microsoft and Netscape web browsers, between the hours of 9 am and 5 pm
Eastern Time Monday through Friday. "

http://www.keynote.com/measures/brokers/


***Hidden costs of OnLine Trading, plus a little bit about Level II Trading , and a great trading company for Day
Traders.
http://www.stocksite.com/features/tech/1999/02/09.html


***Margin -- more than you ever wanted to know. From E F Moody.
http://www.efmoody.com/arbitration/margin.html
http://interactive.wsj.com/public/current/articles/SB92050785046626500.htm



*SEC's Office of Investor Education and Assistance, providing investors with the information they need to
invest wisely and avoid securities fraud and abuse.
http://www.financialcounsel.com./


*Fraud??!! for checking out fraud and reporting fraud. a MUST READ!
http://www.sec.gov/invkhome.htm

+++*a great webstie with all sorts of contact info in case you have a legal problem with your broker
http://www.angelfire.com/ny2/onlinebrokers/

••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••
YOUR VERY OWN OVERSEAS INVESTORS SECTION

***Who knows info about investing from overseas -- US expat or non-citizen?
The answer lies in a multitude of posts. I'm sure not all are here, but it's a start!!

+++•a list of broker that do and do not accept overseas accounts. thanks, ckmw for this post!
http://boards.fool.com/Message.asp?id=1040005003936001&sort=id

http://boards.fool.com/Message.asp?id=1040005003887000&sort=id (follow the thread)
http://boards.fool.com/Message.asp?id=1040005003936001&sort=id



a special note to overseas-types. in the interest of helping each other, let's be diligent and when you find a great or helpful post on this subject, drop me a line and i'll add it to the FAQ. megeranski@ayhoo.com
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{end} :-)





p.s please let me know if there are any great posts that answer common questions. i'll start adding those to this post, too!

a special thanks to those who have given feedback, both praise and suggestions. it is you all who are the true heroes of the internet. the rest, don't be shy!
megeranski@yahoo.com

+++indicates new material

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