Traditionally, stocks are purchased through a broker who charges a commission for each trade or sell. Sometimes, this can be a fairly hefty amount – over $100 each trade. However, for those who want to invest in stocks without spending money on broker fees, there are several options.
Stock Options
More than 10 million Americans receive stock options from their companies. Stock options give employees the right to buy a specific number of shares of their company’s stock during a time and at a price that the employer specifies. The price the company sets on the stock, also referred to as the grant or strike price, is offered to employees at a discounted price. This price is most often the market price of the stock at the time the employee is given the stock options. After a certain amount of time, an employee can elect to cash in his stock options. The idea behind this is that the stock price will have gone up during that amount of time, so the employee will be able to sell them at a higher price, thus yielding a profit. Most employers will have these options automatically deducted from paychecks, so a broker is unnecessary. This is a good way for beginners to break into the stock market without dealing with a broker.
Stock options always have an expiration date, which means employees have a limited window of time to cash in their options. They have a certain starting and end date, and if the options aren’t exercised within the allotted time frame, the employee loses them.
Dividend Retirement Plans (DRIP)
Also called DRP (Dividend Reinvestment Plan), Direct Stock Purchase Plan, Investor Service Program, DPP (Direct Purchase Plan), Shareowner Investment Plan, Buy Direct, and Shareowner Direct, among other things, a DRIP is another way to invest in and buy stocks without a broker. Publicly-traded companies set up DRIPs for a number of reasons, mainly to draw small investors, which tend more loyal than larger companies. People who go with a DRIP do not need a broker; instead, they send a check to purchase stock or use automatic withdrawal, and no fees or commissions are associated with this. Many large companies, such as Wal-Mart and Sony, use DRIPs.
Online Brokers
Another option for those who want to purchase stocks can be done through online brokers such as eTrade or Scottrade. These have grown tremendously in popularity over the years and are a good option for people who already have a pretty idea of what they’re doing with regards to stock trading. With these sorts of accounts, you purchase and sell your stocks yourself for a nominal fee, usually under $10, depending on the amount of shares you trade or purchase. Many times, they will also have incentives for new customers such as no commission fees on the first hundred shares you buy or trade. While you still have total control and no brokerage fees or brokers, these online companies still have a customer service center or brokers on-hand to give you advice or help you should you have any questions or concerns with your stocks or how to sell.
A broker is no longer a necessity for purchasing and trading stocks. Dividend Retirement Plans, online trading and stock options are just a few ways to purchase stocks without hefty commission fees.