In today's wild business climate of corporate downsizing, hostile takeovers, rising and falling interest rates, and a stock market ever on an inexplicable spiral, you really need the help of an expensive brokerage house to help you make sense of it all, right? Not so fast! Here are some things you should consider before handing over your money to the hands of strangers.
Most brokerage houses are honest businesses, but many are not above playing fast and loose with your funds. Do a lot of people lose money when they hire a brokerage firm that handles their money? Yes, and a lot more often than you think.
Furthermore, think about this: that piece of paper full of fine print you sign when you give your money into their care basically ties your hands. Once you sign, they have the power to control your money. If you don't like what they do, you may have to accept the decision of an arbitrator, unless you take your complaint to a federal district court, or insert language into the original contract which protects your rights. Either way, the hassle can be enormous, and costly.
Brokerage firms offer advice on how to invest your money, but sometimes you can run into serious trouble with a stockbroker if you are not paying attention. Stockbrokers have many ways of getting extra money from you. The most common problem is negligence, whereby the stockbroker fails to comply with an order. Another problem arises from a situation called "churning." When a stockbroker churns your account, he advises you to make a transaction which creates commissions for him instead of profits for you. Finally, and in conjunction with churning, a stockbroker can misrepresent an investment, with his own interests in mind instead of yours.
Despite the big bucks spent by brokerage firms designed to convince you that you need them, the truth is that you don't. All it takes is a bit of homework, and an ability to take advantage of free or cheap information available to you in any library or on any bookshelf.
There is nothing wrong with using a reputable brokerage firm to handle your market transactions, but don't be dazzled by the purported "knowledge" of your assigned stockbroker. They're not much smarter than you, and they'll charge you a hefty price for their services.
Several ways exist for you to cash in on markets and funds, and a number of free or reasonably-priced information sources are available to help you along the way.
Trade Adjustment: 2009-08-27 14:56
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Good afternoon! After a few days of waiting, it looks like everything is
falling into place for my short USDCAD trade today as US GDP sent
currencies all o...
16 years ago