The financial market’s landscape has changed considerably over time. Whether you follow the financial sector or not, you have to agree that things have evolved to such an extent that we never imagined. The digital revolution that has seeped in close to all aspects of our lives makes a huge part of it. This is why questions such as ‘how to buy stocks online without a broker are popular especially among new investors.
This transformation that has seen its way into many institutions, did not shy away from investment and financial institutions as well. This digital age has brought us multiple ways to use the internet to buy and sell stocks, without needing a broker to be the middleman. Buying and selling online is great for many reasons as the convenience and ease that comes with it are unmatched. If we talk about businesses, this digital formation has helped bring down the cost, reduced redundancy, and made things easier.
There’s no wonder people have shifted most of their work online. As more and more are shifting online, financial organizations have also started focusing on improving their online experiences by making it more experiential for people in terms of online investment. You get to have a say in any and all decisions to be made. Moreover, what and when you trade depends completely upon you.
As an investor, it is best you weigh your options and see whether buying without a broker would be more lucrative for you in all aspects. Let’s look at the options, benefits and some disadvantages there might be associated with the online investment. This will also help answer some commonly asked questions such as ‘Which online stock broker is best for beginners?’ for all the potential inventors looking for ways to get in:
Buying Stocks directly without a broker:
There are numerous ways to buy stocks directly without a broker but first you need to understand the different ways that you can choose to invest in stocks. If you are a complete freshie in the investment business, you need to start from even further down. This includes asking questions such as ‘what do brokers do?” and ‘is day trading illegal?’ among many others.
Day trading basically refers to a highly risky way of investing during the day and continuing the streak of selling and buying after identifying certain profit margins. This is an incredibly taxing way to invest your money, therefore a large number of investors do not pursue it. Even though it is completely legal, it is considered such a risky investment and strongly advised against if you are looking for less-intense options.
On the other hand, brokers are middlemen who assist you in your investment journey. The industry has come very far, but it started off as a mandatory part of any investment. You cannot just hit up companies asking to buy stocks, that is what brokers are for. Moving on from here, there are different types of brokers as well. As time has progressed, we’ve come to a place where the traditional type of brokers are not the only type we have. There are two different types and both of them are identified with their function, let’s look at each one:
1. Full-service broker:
Whatever is the first image that comes to mind when you hear the words ‘full-service broker,’ might be the correct assumption. Since a large number of people are still not aware of any other type. A broker still brings the image of a traditional suit wearing, brief-case carrying individual doing business from their office. And that image will still be correct,only for a part of all stockbrokers. These stockbrokers are dedicated full time service providers, that learn and identify you fully just as a lawyer would, before taking your case.
Similar to how a lawyer is bound to his/her clients’ good and bad deeds with regards to the case it takes, a stockbroker looks into a client’s financials in a similar manner. They work towards knowing you personally first and financially second. This gives them an overall idea about factors affecting your investment decisions etc. Your age, marital status, previously accumulated wealth, expenses, income, lifestyle, loan/debts you have previously taken and other such factors all matter to a full-service stockbroker.
Their main strategy is to come up with a plan to invest for the long-term. All of these above-mentioned factors help a full-service stockbroker make an informed decision. But the great thing about full-service stockbrokers is not restricted to investment advice. They can help you make other such big decisions regarding your finances too – from investing in real-estate to tax payment-related advice and budgeting your finances.
Generally speaking, full-service brokers are generally opted for by high-end investors who want to have all their financial fronts covered by one person or entity. Due to their extended service list, full-service brokers are expensive and can cost you plenty. But considering the amount of nuance and comprehensive advisory they bring to the table, it is considered a valuable investment.
Imagine yourself getting bad advice that leads you to a considerable loss when you are already investing in an advisor too. Investment advisors are an additional cost to you in case you go for another type of broker, but full-service brokers cover it. It’s best to choose the most experienced and well-known in case you are going for a full-service advisor. They’re not too difficult to get a hold of. This way you have an ideal advisor by your side who helps you attain a profitable present and future.
2. Online/discount broker:
An online or discount broker as the name suggests to start with, is not a full-time broker but more of a middleman who follows your orders regarding stock decisions. They do not provide you any type of advice or assistance regarding decision-making. This is why they are much less expensive and do not cost you an arm or a leg. Their time period and workload do not require them to be readily available to you regarding financial advice or even investment-related advisory.
There’s no office or team of investment advisors with them, which also cuts off the additional costs that come with full-service brokers’ services. It uses the vast landscape of the internet to run and you can open an account through it whenever you want. The cost in most cases is dependent upon the transactions you make with an online broker. This pay-per-transaction works very well with new investors who are looking for opportunities without spending a whole lot of money before they even make any profit.
You can basically start your account at any time, with close to no money. An online broker enables you to be able to invest via the internet using its website. All you have to do is login to your account from the website and browse the stocks until you find something that interests you enough to buy or sell. You have to make sure that you are on your own in terms of which stocks to buy or sell as well as at what time and rate. You manage and navigate the entire investment procedure, just short of buying the stock.
Some of the online/discount brokers provide assistance in terms of where to look for advice or research. They provide you with resources and references to conduct your own research to find out what you think is best for your investment strategy. This is a great way to get a headstart on your investment procedure if you are a new investor. The lack of engagement lets you roam around the market, both metaphorically and literally, to find out things on your own. The resources and links your online broker provides you can aid your strategy while you sketch out your plan. Buying and selling stocks is a walk in the park if you nail how to do that.
Both full-service brokers and online/discount brokers are good options, you just need to decide what type of assistance you are looking for. Another way of putting it would be to look at your personal needs and requirements in terms of investment. If you are an established investor or at least open to paying a big amount to have someone handle your financials, a full-service broker is your way to go. In another case where you are just starting out and want to experience the stock market on your own, a discount/online broker would be great for you. All you need to do is prioritize what is important for your investment process and choose.
Buying Stocks directly from a company:
Some companies also offer different opportunities to invest in stocks, considering you are part of their employment staff. This is another way of investing without involving a broker in too much of your business. It also removes any need for a broker from the process.
There are two ways to get involved in this type of investment though, while you are an employee of a company or if you are investing in another company. For company’s own employees, there are options such as Stock Option Purchase Plan (SOPP) Direct Purchase Plan (DPP), or Stock Purchase Plan (SPP). These are options an organization gives its employees to be able to invest in any company without having to pay an extra fee for brokerage.
Even though the investment amount is lower due to cut back on the fees, there is a catch to this type of investment. It limits your stock purchase, directly affecting how much you earn through that investment. There are other ways to invest in stocks through different programs. Unlike a company’s own programs, when you invest with programs on your own, you get more autonomy and decision-making power regarding how much and when you will invest. These options include:
1. Direct Stock Purchasing Program (DSPP)
This program allows you to buy stocks in a company without a need for any broker and middleman to assist you in the process. What happens is, the company you choose to invest in gets specified access to be able to charge money from your savings or checking account for payment.
The choice is yours to make a big investment once or in parts through monthly installments. The decision of retaining or reinvesting your dividend into the company also depends on you. It is a great option for investors who are looking to invest in some particular company they trust will provide them a good return.
2. Dividend Reinvestment Plan (DRIP)
Similar to the stock brokers, DRIP is a direct investment plan that allows you to invest the dividends you earn back as stocks. It removes the entire hurdle of paying broker and commission fees on every transaction. The plan allows you to buy some percentages of the shares insead of the entire stock as a rule.
Buying without brokers can be helpful and beneficial for you for many reasons, especially considering the most important one, saving you the service fees. Hope this helps you in addressing the million dollar question of ‘how to buy stocks online without a broker’. All you need to do is research and build a strategy that works for you and let the online broker do the buying and selling for you.