OPENING AN ONLINE BROKERAGE ACCOUNT

Looking over Online Brokerage Services
You can purchase most things these days by entering your
credit card number on a Web site. But you can’t buy everything
this way. To trade stocks, bonds, mutual fund shares,
or other securities, you must first open an online brokerage
account through a brokerage firm.

In the world of Web-based trading, your online brokerage
firm is responsible for

n Executing trades: When you tell a brokerage firm that
you want to buy or sell stocks, bonds, mutual fund
shares, or other securities, the firm is responsible for
communicating with the securities exchange or entity
through which these securities are sold.

n Maintaining account records: The brokerage firm is
responsible for maintaining information about the assets
held in your account and updating this information
periodically.

n Providing updates and information: Your online brokerage
firm is an important link to the investing world.
The firm’s Web site should provide quotes, updates of
the market, and access to charts, news, and research
reports.
n Providing other convenient services: You may get the
benefit of free checking and other handy services with a
particular broker.

Finding a Reputable Online Broker

How do you find a broker that’s reputable? Protecting yourself
isn’t difficult, but traps for the unwary are still out there.

For starters, be sure to choose a broker that meets the following
criteria:

n SIPC insured: The Securities Investor Protection Corporation
(SIPC) currently insures securities and cash in
a brokerage account for up to $500,000 (but no more
than $100,000 of that may be in cash).

n Listed on survey sites: Select a broker that is evaluated
on the Gomez Advisors and SmartMoney Web sites
(which I discuss later in this chapter) or at least gets a
good write-up in a national magazine. Stay away from
brokerage firms that haven’t been prescreened on these
sites or by the media.

n Look for objective referrals: Steer clear of chat room
advice from unknown sources whose motives and credentials
you can’t discern. (As a matter of fact, you can’t
even tell when chat room information was last
updated.)Your goal is to avoid online sales pitches disguised
as “hot tips.”