So now that you've opened your discount brokerage account, what can you do with it?
Like we discussed in my previous article, with a discount brokerage you can purchase and hold stocks, bonds, mutual funds, and ETFs. And if you're a more daring investor you can also purchase some derivatives such as options, once you're comfortable with your account.
However, before you execute your first trade, you need to familiarize yourself with your discount broker's website.
"Take a tour of the website so that you understand the various aspects of it. All the equity, analytics and technical tools are imperative to learn how to use. You want to become familiar with the platform and most importantly you want to become familiar with how you access the information," says Richard White, vice president of business development, online brokerage at Scotia iTRADE.
The responsibility of researching investments and utilizing the online platform properly lies with the investor because discount brokers are prohibited from offering advice or recommendations.
Because of this stipulation, most discount brokerages offer webinars, seminars or guided tours for users to learn how to navigate their platform, how to avoid extra fees and how to maximize profits when executing trades. There are hundreds of webinars available in the discount brokerage space ranging from how to interpret mutual fund research to basic housekeeping tasks like where to find your investment statement online.
Discount brokerages that offer free webinars and seminars
As well, many discount brokerages offer webinars that cover specific investment concepts that investors may be unfamiliar with or just not comfortable with. For example, Scotia iTrade offers an Introduction to Options seminar, where you are taught what options are, the terms and pricing of option contracts and their risk and reward features.
But with all this information available, it can sometimes feel overwhelming. "There's a lot of information on the web, there's good information and there's bad information. For example, you can start out with a legitimate website and after three clicks you're unknowingly on a blog, reading someone's rant on a company. That's not going to help you when you're trying to research a company," says Serge Pépin, vice president of investment strategy at BMO Asset Management.
Pépin says to avoid this situation stick with a trusted source, that's as independent and as unbiased as possible, and that's going to assist you in making an informed decision.
Some research features to look for on discount brokerage sites:
Most discount brokers have some sort of screener that lets you find the specific stocks, mutual funds or ETFs that match a set of criteria like industry sectors, fund categories and performance, among many other options. A watch-list is also a great tool to help you manage your portfolio; it allows you to track investments that you don't own but are thinking of buying and to see their performance relative to benchmarks.
When you're researching a stock, the company's financials should be visible, including the income statement, balance sheet and cash flow statement. You should also be able to find fundamental stats like price-to-book (P/B) and price-to-earnings (P/E) relative to the industry, as well as a detailed company profile, giving you a business summary and price information on the stock since its inception.
Since discount brokerages can't provide advice, your way of getting an expert's opinion of the company is to read the analyst reports that are provided. They're full of useful information and when used properly they can be a valuable tool.
Pépin says that sometimes they can appear daunting especially for novice investors. However, once you start reading them the structure and terminology will become more familiar.
Generally, in the report there is a buy, sell or hold recommendation. But, don't use one analyst's recommendation as your core reason for choosing a stock or fund; "Choosing a stock solely on analyst reports can be dangerous since some analysts can be bullish on a stock while others could be either neutral or bearish," says Pépin.
The most important factor to consider is how the analyst reached his decision. Try to figure out why the analyst is or isn't bullish on the company, and how he reached his conclusion because his reasons may not resonate with your own investment thesis.
Shop around and check out other legitimate third-party research websites, such as Morningstar to compare analyst choices and see which one aligns with your own investment philosophy.
In the end, finding the right investments is not going to be easy. However, if you do your homework before pulling the trigger, the hard work should pay off. "Research is an exercise you can't avoid. It's an important exercise and it can add a lot of value to your portfolio if you spend time researching," says Pépin.