To carry out online trading operations, you need to turn to authorized online brokers, sites that are similar to virtual financial operators, by means of which we can buy and sell financial products on the markets, paying commissions.
In order to make this type of online investment, since we are not dealing with individuals, we need to determine who we are entrusting our money to, i.e. whether they are reliable interactive brokers, whether they comply with the laws in force in Europe, whether their commissions are acceptable, etc.
A broker is an individual or company that acts as an intermediary between an investor and a stock exchange. Since stock exchanges only accept orders from individuals or companies that are members of that exchange, individual traders and investors need the services of the exchange’s members. Brokers provide this service and are compensated in various ways, either through commissions, fees or paid by the exchange itself.
In addition to processing customer orders, brokers can provide investors with research, investment plans and market information. They can also cross-sell other financial products and services offered by their brokerage firm, such as access to a private client offering that provides tailored solutions to high net worth clients. In the past, only the wealthy could afford a broker and access the stock market. The online broker has triggered an outbreak of discount brokers, which allow investors to trade at a lower cost, but without personalised advice.
Discount brokers can execute many types of transactions on behalf of a customer, for which they charge a low commission of between €5 and €15 per transaction. Their low fee structure is based on volume and lower costs. They do not offer investment advice and brokers usually receive a salary rather than a commission. Most discount brokers offer an online trading platform that attracts a growing number of self-directed investors.
Full-service brokers offer a variety of services, including market research, investment advice and retirement planning, as well as a full range of investment products. As such, investors can expect to pay higher commissions for their transactions. Brokers receive a fee from the brokerage firm based on their trading volume, as well as for selling investment products. An increasing number of brokers offer fee-based investment products, such as managed investment accounts.
Brokers are registered with the national stock exchanges. As far as the European Union is concerned, a broker must be registered with one of the European stock exchanges in order to operate in one of the European countries.
ATTENTION: There are many interactive brokers that are not registered with one of the European stock exchanges, but with other stock exchanges, such as the Asian ones. BEWARE OF THIS TYPE OF BROKER, because if something occurs, you have no guarantee for your country.
Finally, there are some real scams of Online Brokers that are actually not brokers at all but real fraudsters, as you will read below.
There are many companies registered as brokers with FINRA, although some may use their broker designation for different purposes than others. Many proprietary trading firms are registered as brokers so that they and their traders can directly access trades, but they do not offer broker services to customers in general. This is distinct from the role that discount or full-service brokers might provide.
Full-service brokers tend to use their brokerage role as an ancillary service available to high net worth clients in conjunction with many other services such as retirement planning or wealth management. Examples of full-service brokers might include offerings from a firm such as Morgan Stanley or Goldman Sachs or even Bank of America Merrill Lynch. These firms may also use their brokerage services on their own behalf or on behalf of corporate clients to make large transactions in equities.
Other full-service brokers may offer specialised services including trade execution and research. Firms such as Cantor Fitzgerald, Piper Jaffray, Oppenheimer and others. There are many of these firms even though their ranks have dwindled due to mergers or the increased costs of complying with regulations such as the Dodd Frank Act.
Still other full-service brokers offer advice and personalised communications with clients to help manage assets and plan for retirement.
Most of the larger brokerage firms tend to keep an inventory of stocks available for sale to their clients. They do this to help reduce the cost of exchange commissions, but also because it allows them to offer quick access to popular stocks. Other full-service brokerage firms are actually agency brokers. This means that, unlike many larger brokers, they do not have stock inventory, but act as agents for their clients to get the best trade executions.
Many discount brokers have made a significant change in their business model that included no commissions on some or all of their stock trades. Examples of some discount brokers include Fidelity, Charles Schwab, E-Trade, Interactive Brokers and Robinhood.
Proprietary trading firms registered as brokers may not advertise their services as brokers, but use their broker status in a way that is integral to their business. While banks or larger firms may have proprietary trading desks within their company, a dedicated proprietary trading firm tends to be a relatively smaller company.
Before we talk about the best brokers, let’s first clarify what an interactive broker is: they are financial traders who are able to trade stocks, forex, indices, commodities, lately cryptocurrencies, but also derivative financial products such as CFDs or Futures that the client orders quietly from his home PC or smartphone.
Brokers work with an algorithm programming language, i.e. they are able to predict with a certain degree of probability what the market will do.
By setting the filters of each broker correctly, you can make many investments every day, predicting what the stock market will be like and buying or selling shares accordingly. The capital to be allocated to these operations, however, should not be too high, to avoid exposing yourself too much to the risk of losses.
Many interactive brokers work with binary options, i.e. they are able to decide whether or not to buy shares using a binary programming language. The answer is Yes or No and there are no intermediate ways (such as negotiating on the price or number of shares to buy).