Yes, you can buy stocks online without a broker. There’s no need to have to call another human being to buy a stock. However, the online services that let you buy stock online by yourself are still ‘brokerages’ and charge fees every time you buy a stock. This is because they are a company that buys the stock on your behalf.
You can buy stocks directly from some companies using direct share purchasing. However there are still some small fees, particularly when selling the stock. Lately, a few brokerages have appeared online that let you buy stocks without any brokerage fee. All you have to do is pay them the cost of the stock. Read on to find out more about those.
Wanting to buy shares of stock brings up images of someone in a suit picking up a phone and calling their broker. But since the internet took off it hasn’t been a necessary step in buying stocks. Broker’s fees for a phone call purchase of stock are more expensive than today’s cheaper online brokerage fees.
Many financial experts point out that brokers who push stocks can be more motivated to get their clients to constantly buy and sell stock in order to get their broker’s fees.
However, Online Services are Indeed Brokerages That Buy Stock For You and Charge a Broker Fee
An online brokerage lets you create an account online with an interface that lets you pick a stock and buy it. Whether you buy a single stock or one hundred you pay a single brokerage fee for that lump purchase of stock. That fee is anywhere from $4.95 to $25.95 on top of how much the stock costs. So a single share of Apple at $120 dollars purchased with a brokerage fee of $6.95 means you will pay $126.95. Purchase 10 shares of Apple and you’ll pay $1,206.95.
So although you don’t have to talk to a human when you create an online account to buy stock, you are still technically using a broker. If you’re interested in saving on the broker fees, keep reading. We’ll show you how to save on those.
Documents Needed to Open Your Own Brokerage Account
To open a brokerage account you’ll need your taxpayer identification number (TIN). If you’re a normal individual, that’ll be your social security number.
You’ll also need a bank account to link the online brokerage account to.
Some Brokerages Don’t Charge Fees
Don’t want a brokerage that stands between you and the company you want to buy stock from with their fees? Aren’t interested in fancy extras but just want to get started buying stock? If that’s the case you’ll want to take a closer look at some of the recent online brokerages that have started up which offer no fees. Buy $100 of Apple stock and they don’t charge you an extra fee. You fork over $100 and you get $100 worth of the stock you want. Simple and straightforward.
Right now the two biggest no-fee online brokerages popular with starting investors are Robin Hood and Loyal 3.
What’s the catch?
Both companies don’t have nearly as wide a list of stocks that you can buy. Robin Hood and Loyal3 negotiate with those companies to let them buy stock. Both companies therefore focus on big ‘blue-chip’ stocks. Think Apple, Kraft and McDonald’s. The companies eat the broker fee in order to encourage small investors to buy their stock.
Robin Hood and Loyal3 also don’t get the best price of the day or trade the instant you click the button. They gather up all their client’s requests for stocks and buy them during certain points. So market timers and fast sellers need not apply. These no-fee brokerages are for buy and hold investors with simple, straight forward needs.
What’s also nice about Robin Hood and Loyal3 is that investors can purchase ‘fractional shares.’ For example, if you have $100 and Apple is worth $120 a share it can be a barrier to investing. With fractional shares and automatic purchase plans, these services can get you .8333 of a share with that $100.
How to Buy Stocks Directly from a Company with no Broker
A number of companies use a service called Computershare or Directinvesting.com to allow investors to buy stocks directly without a broker. There are still some fees to consider here, though. You first have to set up a Computershare account, which can be $5 to $20. There is a small transaction fee on each stock purchased of 3 to 10 cents. There is a small charge for reinvesting any dividends paid to the investor, at 5% of the dividend up to a maximum of $2. The bigger charge comes when the stock is sold when a transaction fee of $15 and 12 cents per share is charged.
So even going direct still means getting a broker or an online broker out of the way, online brokers fees are so low if not free that it is not that hard to find a broker with fees for buying and selling stock that end up being cheaper than the direct service.
Skipping the broker saved humble individual investors in the days before cheap online brokerages when the broker’s fee was $20 and upward. But that was a different world.
In order to sell securities the brokerages have to be insured. Look for a statement on the homepage about them being ‘SIPC’ insured. That means investors are insured if the company that runs the brokerage collapses. The SIPC covers up to $500,000, with $250,000 cash in the account. This protects investors from having a brokerage go bankrupt and lose all their money and investments.
However, this does not mean that if a stock you hold goes way down in value you are protected. If you buy $1,000 worth of a stock at $100 a share, you hold 10 shares of that. If it goes down to $50 a share, you lose $500. The SIPC will not help you. That’s the risk of investing. But if you have 10 shares of a certain stock and the brokerage goes bankrupt, the SIPC helps you to recover those 10 shares… whatever they’re worth.
Fees of Top Online Brokerages, Free Brokerages and Direct Stock Purchases Compared
Here’s a comparison of the fees of some top online brokerages, free brokerages and direct stock sales.
|Brokerage:||Cost to buy stock||Cost to sell stock||Minimum Amount to Open Account|
|Computershare||3-10 cents / share||$15 + 12 cents / share||$250 and up depending on stock selected|
|Capitol One Investing||$6.95 (or $4.95 with automated share purchases)||$6.95||$0|