Indeed, when choosing a brokerage house, potential customers will find that there exists a wide range of services

and fees. The spread in dollar costs can be substantial. But, so too, can the services provided. Therefore, it is important to understand the definition of each type of broker category, as well as the limitations and/or capabilities of the various classes. In this discussion, we will examine the differences between discount brokers and deep discount brokers. Discount brokers are typically those brokers who offer a discount or savings on their fees. This category of broker, however, should not be confused with companies, such as bank departments, who make special offers to their clients. Discount brokers provide less services than a regular brokerage firm in return for reduced fees. Sales agents representing these types of companies are not permitted to provide clients any sort of investment recommendations. In fact, they are not even allowed to provide research material at all. The onus is on the clients to complete their research. For individuals and groups who are capable of handling their own fact-finding missions, then discount brokers are the perfect options for them. Being able to save money is indeed a bonus. Discount brokers do not advise you on the mechanics of your trades. For example, they will not tell when to buy and sell, and what to buy and sell. They do offer many services like the full-service brokerages, but they do not solicit per se, meaning that you must know what you want, and when you want it. They keep their fees low by having no on-staff analysts and researchers. Further, discount brokers may or may not provide services for transferring funds from one account to another, and may or may not conduct trades in certain areas. For example, some do not trade in futures. Therefore, it is incumbent upon the client to ascertain the type of services rendered before choosing a discount broker. Deep discount brokers are so labeled because they provide no services whatsoever. All they do is execute orders, period. The clients tell them what to buy and sell, when to buy and sell, and how to buy and sell. Other than completing the task on behalf of the clients, the deep discount broker does nothing more. Most often, they deal in stocks and options only, and charge a flat fee for their services, regardless of how big or how small. Because there are no services, and because everyone pays the same, the fees are cut dramatically, to the clients' benefits. For investors who are experienced, and can do everything else on their own, deep discount brokers would be advantageous to them. Frequently, online sites fall into this classification of broker. For experienced individuals, and those that prefer to do their own trading, the websites exist because, legally, a licensed broker must execute the orders. The investors do everything themselves, and then send their orders to the brokers through the online system. Lastly, the fees are generally less than those of a discount broker. To conclude the discussion, it is important to point out that your choice between full-service brokerage houses, and discount or deep discount brokers, directly impacts your bottom line or return on investment. For example, some online deep discount firms are advertising fees of seven dollars ($7) per trade. If a full service firm is charging a hundred dollars ($100) for that same transaction, then you can see that your bottom line is negatively impacted by a substantial amount. And, if you are making trades on a regular basis, the price differential can actually cause losses.

Prime brokerage
Another classification of broker is the prime brokerage. Briefly, it is a firm that engages in services that are considered out of the ordinary. For example, accounts with very large dollar amounts being committed to trade. Typically, the services are provided to a select group of clients. Additionally, the funds that are managed by these brokers tend to require special attention. Hedge funds were original examples of this concept. Usually, the bigger, major firms are characterized as prime brokerages because they have the leverage and resources to administer these portfolios. They are also well-known, and attract a certain type of clientele. Some of the services that are provided by the leading firms dealing in prime brokerage are securities lending, securities borrowing, financing solutions through hedge funds, new capital acquisition, credit derivatives intermediation, clearance and settlement services, risk analysis and reporting, technological support, consulting, and execution of trade orders in options, securities, foreign exchange, futures, and derivatives. Since prime brokerage are the keepers of the assets, because they are responsible for their clients' monies, in order to improve a fund's performance, they interact with clients to unite financing, capitalization, and borrowing. Typically, prime brokerage firms work on a global scale, and have experts in all fields throughout the world. Thousands of people work in their various offices in different countries. Their years of expertise, and the volumes of historical data that they hold in proprietary databases is enormous and of great benefit to clients who have the resources to participate or contribute. Traditionally, one of the benefits of prime brokerage has been the ability to stay with one company or custodian, as it is called, but make trades at another. The settlement services are provided by the client's own company, avoiding the issue of having multiple accounts with multiple prime brokers. And, because resources are tight in this economy, the creators of the funds are more than happy to deal with several prime brokers, in order to leverage their access to pools of capital and resources. One concept of prime brokerage that proves interesting to many people is that prime brokerage is a form of currency. Since the funds involved allow access to capital resources, it means that when capital is scarce, the fund creators have the leverage to access resources that normally would not be available to them. Working with an investment bank, for instance, would not be option without the hedge fund. Moreover, clients who use prime brokerage services need more personal service, meaning that their monies must be continually monitored and micro-managed. Activity is a daily and nightly occurrence, and the stakes are high. Other clients, for example, that must raise capital quickly will have access to investors who can help. An important feature of prime brokerage is the limitation of risk. While it is conceded that all investment carries risk, most transactions, especially hedge funds, must exclude high risk ventures. In other words, all start ups are agreeably precarious to an investor, and would not be part of the bundled services or package offered.

Online brokers

As the internet world becomes larger and more influential, so do online investment brokers. What once was an industry where people communicated through telephone and mail, now, many investors are conducting business through various online sites, ranging from self-serve options to full-service selections. Big brokerage houses, small independent brokers, and discount companies can all be found online. Whether they are called online investment brokers, electronic brokers, e-brokerages, online brokerages, computer brokers, internet trading, or electronic trading, their websites number in the thousands, and can be found rather quickly by using any search engine.

One of the biggest advantages of finding online investment brokers is that many sites offer free demo accounts. Having the opportunity to learn, and try things out, means that more people can jump into the trading and investing arena. Plus, many sites have training sections, so you can really start investing at your leisure, and at your own pace. Learning from the internet is not quite as intimidating as in the old days when you had to depend on other people or outdated books. Another major benefit that quickly emerged as a result of online investment brokers, is that the industry as a whole became more competitive driving fees down. With so many new trading sites being created on a daily basis, discount brokering, no-frills services, and cheap fees became the norm. Other companies immediately saw the impact of this new type of business on their own bottom lines. As a result, many brokers have had to acquiesce to the new breeds, and the new models of doing business. In relation to competition, the internet also made it easier for brokers to enter other territories. Where previously, independent and small brokerage firms conducted business in their immediate regions, now, as long as they have the required licenses, they can operate in a broader range of locations, crossing state borders if necessary. For the average person who liked to dabble, or even the more experienced trader who preferred to save money by avoiding the fancy offices and personal service, she/he stood to gain from online investment brokers. Truly, the gulf between discount brokerages and full-service brokers has been bridged due to the internet. What is most curious is that not only were the top firms forced to rethink their business models, in order to compete with online rivals, but, the new online companies were continually pushed to improve their services. That meant that what started out as a no-frills, bare-bones cottage industry, offering services to qualified investors, actually grew into a large discount-services-with-perks movement. Finally, online investment brokers provided more flexibility for traders. Prior to online trading, investors were limited to specific banking or business hours. Now, because of the internet, traders can readily participate in foreign markets,

and can check their accounts at any time of the day or night. In reality, international or global markets should operate more effectively and more efficiently, because they have access to a larger and greater range of resources. There are more investors available because the borders and time constraints have been removed. And, now, due to the internet's influence on the trading environment, minimum purchases or deposits are much lower as well, providing a more equal foothold for all types of investors.

Otc brokers OTC refers to over-the-counter, thus OTC brokers are over-the-counter brokers. But, what exactly is OTC and what is the function of OTC brokers? Broadly speaking, OTC brokers might trade in unlisted stocks, bonds, and derivatives. Financial instruments classified as over-the-counter are categorized so because they are not traded on a formal exchange, such as a stock exchange. Unlisted stocks are one example. Bonds, which are examples of debt securities, are OTC because they are generally sold by a network such as banks and other financial institutes. And, derivatives are contracts involving two entities, which are not sold through exchanges, but rather OTC brokers. Often, investors are confused by the term unlisted stock. They do not understand why it is not bought and sold on any of the stock exchanges. The answer to this is simple. The company that has issued the stock does not meet the criteria of any exchange. Therefore, they cannot sell the stock in that manner. They must find other ways to create interest, and ultimately sell the stock to investors. This is done through OTC brokers who negotiate the deals. Frequently, people are also confused about the role of NASDAQ. Many believe that because NASDAQ has its own dealer network, that the stocks listed there are considered OTC. This is not true. NASDAQ is a stock exchange, and those stocks are not OTC. In 1990, the OTC Bulletin Board (OTCBB) was created as a result of the The Penny Stock Reform Act which required the SEC to develop an electronic system to publish quotation and last-sale information. The OTCBB is basically a way for subscribers to view real-time quotations, and know what trade activity has transpired in terms of volume and price. It may include regional, national or foreign securities. Two complaints about these OTC stocks, however, are apparent. First, sometimes companies who have tried to get their stocks listed were denied due to credit issues or some other misconduct. The same due diligence that goes into accepting a company's stock to the exchange is not existent here. Second, there are many penny stocks. Another method of discovering OTC trades is through "pink sheets". Stock symbols from companies trading in this manner end in the letters "PK", derived from the fact that the sheets were originally made from pink paper. Again, the companies who sell their stocks on the pink sheets generally cannot be listed on any stock exchange, for various reasons (and not always negative reasons). Bonds were published on "yellow sheets". Now, due to the electronic distribution of information, the color of the sheets is non-existent, but the names are still used. In fact, the names are quite old dating back to 1913 when the National Quotation Bureau (NQB) started with the purpose of supplying information to investors and traders about OTC stocks and bonds. The company's name was eventually changed to Pink Sheets LLC, then to Pink OTC Markets Inc, and now, its legal name is OTC Markets Group, Inc. The service provided is called OTC Link.

Additionally, the Pink Sheets, or OTC Markets Group, Inc has established tiers for OTC stocks which include OTCQX (the cream of the crop), OTCQB (companies that report to either the SEC or a US banking regulator), OTC Pink (no reporting standards), Grey Market, and Caveat Emptor (obviously the most risky level of OTC trading).

Exchange brokers

An exchange is the act of giving and receiving, typically for the same value, or at least for the perceived value of the items. In other words, trading one thing for another of equivalent value. An exchange can also be a place or medium where people congregate to swap, sell, buy, auction and trade their assets. A flea market is an example of an exchange. A system of barter is another form of exchange. An exchange is the marketplace. Thus, equities, stocks, commodities, futures, and options are sold on various exchanges throughout the world. And, like other financial transactions, the exchanges or trades require licensed individuals called exchange brokers. Agreeably, there are many types of exchange brokers including foreign currency exchange, over-the-counter exchange, stock exchange, derivatives exchange, and commodity exchange board brokers. FOREX and OTC, however, do not trade on a formal exchange, but rather, through a dealer network. Stocks and commodities, on the other hand, are negotiated on exchanges such as the Boston, Chicago, and New York stock exchanges. The Philadelphia Stock Exchange is the oldest in the US, having commenced operations in 1790. NYSE followed shortly, thereafter, in 1792. And, there have been other regional exchanges that have come and gone through the years. But, one commonality is the existence of exchange brokers. These are real people on the floor of the exchanges, executing buy and sell orders, as well as negotiating with other exchange brokers. Further, floor brokers or stock exchange brokers should not be confused with floor traders. Each has completely different roles in the exchanges. Floor brokers, generally, execute the orders from their companies. Clients call their individual brokers who give advice whether they should buy certain stocks or sell stocks they own. The individual brokers send the orders to their firms, and from there, they go to the exchange brokers, who carry out all the clients' wishes. Floor traders, on the other hand, are not dealing in client orders, but rather, are purchasing and selling for their own accounts. NASDAQ is also an exchange, but an electronic medium. Instead of congregating in the same place, exchange brokers work within a framework of computer technology. In addition, these types of brokers are commonly known as "market markers'. They do not necessarily trade on behalf of their clients. In fact, in some instances, they actually own and take possession of the securities. Frequently, they add mark-ups to the price, selling them to investors, for example. Furthermore, an exchange is the place of liquidity. It is the means by which investors or shareholders can divest themselves of their holdings. Exchange brokers facilitate this process, in accordance with SEC regulations. Obviously, broker licenses are required in order to execute orders. The exchanges, themselves, also offer different forms of protection for investors. While, it is not specifically required that future stock brokers have university degrees, it is to their advantage in most cases, in order to vie for the better jobs. Before candidates are actually accepted to

take the General Securities Registered Representatives Examination (Series 7), they need to complete a type of coop or internship with a firm. Thus, having the best possible rsum will be extremely important. One last comment about exchange brokers. Although they do command considerable incomes, the positions are fastpaced and demanding. Mistakes are not options.

Forex brokers
FOREX has become the most recent online buzzword. You cannot search any financial site on the internet without seeing an advertisement for FOREX trading. In fact, the trend to solicit forex traders has been rising for a few years now, but it is still increasing by leaps and bounds. And, while the term itself may sound very mysterious and even foreboding for the everyday person, the truth is that FOREX just means "foreign exchange". It is the buying and selling of currencies. The basic goal behind forex trading is to make a profit on the exchange of money. Because this is a cash market, it is the most liquid, and is the biggest market with estimates in the trillions of dollars exchanged daily. And, it is a market in which anyone can participate, regardless of how small or large. Understandably, banks have traditionally been major players in the forex market, but now individuals can dabble as a hobby, or earn their livings in the trade. As a result, there are plenty of forex brokers. Also known as FX, forex trading is not done on one specific exchange. It is considered over-the-counter, but is usually based around important financial hubs like Zrich, Paris, New York, London, Tokyo, Hong Kong, Sydney and Singapore. Exchanges can be made on many countries' currencies, and unlike the stock market which closes everyday, forex trading can be conducted twenty-four hours a day. Each currency is given a symbol for trading. The predominant dollar is the USD, with other popular currencies such as the Euro, Japanese Yen, Swiss Franc, and Great Britain Pound. In order for individuals to make their trades, forex brokers are required. The brokers execute the buy and sell orders, and generally take a commission based on the bid-ask spread. That is the differential between the buying price (bid) and the selling price (ask). When choosing a forex broker, it is a good idea to verify the credentials first. In the US, brokers are members of the National Futures Association (NFA), a self-regulatory agency, and are registered with the US Commodity Futures Trading Commission (CFTC), a governmental body. Each broker is issued a number which should be displayed, but do not just accept that the information on the website is accurate. Verify it first before opening an account and depositing any money. Another feature that is important when starting in the forex market is whether or not the brokerage has an online "practice account". This is crucial because you need to understand the trading platform or the software the company uses. You want to be able to practice first before losing your money unnecessarily. In addition, you should know whether the company offers 24-7 support, and whether the online support is a real person or virtual attendant with standard FAQ answers. Moreover, before opening an account, understand how forex brokers earn their money. You want to know how the commissions are collected, as well as your total costs or expenses.

Finally, before choosing a forex broker, be sure the brokerage offers the trade you wish to make. Because you are dealing in currencies, you obviously need to exchange or move one currency into another. That is called a "pair". Make sure the brokerage offers your specific trading pair.