by Amanda Harvey
Buying stocks without a broker has become a very common practice since the advent of online trading. Although a great deal of online trading is conducted through a brokerage firm, it is not the traditional style of dealing personally with an individual stock broker.
While there are investors who still prefer the personal involvement of a broker in their trading, there are many investors who favor a more self-directed approach. Dealing through a full-service broker incurs high commissions, and the advice and products they offer may not be necessary for the majority of individuals with access to all the information and discount services available online.
There are other methods of buying stocks
without a broker, such as Direct Investment Plans, and Dividend Reinvestment
Plans which will be explained in further detail below.
Using Direct Investment Plans
This approach to buying stocks without a broker involves buying the stock directly from the company in which the individual wishes to invest. Many large, blue-chip companies offer programs for direct investment. The investor buys and sells stocks directly through the company, thereby eliminating the need for a broker.
One of the advantages of using this method of buying stocks is the potential saving on fees and commissions that using a broker normally incurs. Many companies offering direct investment opportunities charge only a small fee per share, and no initial fees, however, other companies do charge start-up fees and/or charge fees higher than some discount brokerages.
Another saving can be achieved when reinvesting in the same stock, which would attract fees if conducted through a broker, but is usually low-cost, or even free, through the process of direct investing.
One of the drawbacks in choosing this method of buying stocks is that there is a limited arena in which to invest. Of the plethora of companies offering shares to the public, only a small proportion of these offer their shares by way of direct investment plans.
It is also possible that transactions may not be executed promptly, resulting in a loss of potential profit while the sale is being processed. This time lapse could also result in a smaller amount of shares being purchased than the investor expected if the price has risen in the interim.
Using Dividend Reinvestment Plans
This method of buying stocks without a broker, commonly referred to as a DRIP (Dividend Reinvestment Plan), is only available once an investor already has a share holding in a company. If stocks have previously been purchased – either through a direct investment plan or another method, the holder is then eligible to reinvest the dividends that their stocks attract.
Dividends are calculated monthly, and a share holder has the option of re-investing all, or part of these dividends. The designated amount is used to buy shares in the company, and there are a couple of extra advantages available through this type of plan.
The first is that fractional shares are available to the investor, meaning that all available capital is re-invested, rather than accruing as cash. Reinvestment plans also allow the investor to benefit from the application of Dollar Cost Averaging, which means that over a period of time, an average is paid for shares of the stock.
Using Online Trading Platforms
Using one or more of the multitude of online trading platforms available basically allows an investor to act as their own broker. This way of buying stocks without a broker is the most widespread, and offers the broadest possibilities to investors. Trades can be executed instantly, which, combined with the access to a huge spectrum of investment opportunities, up-to-the-minute information, and many companies offering economical commission rates, makes this an excellent choice for many investors wishing to buy and sell stocks without the direct involvement of a broker.
With the variety of methods available to an investor for buying stocks without a broker, there is less and less need for the expensive costs involved in the traditional reliance on a stock broker. Individuals can deal directly with certain companies to buy and sell stocks, or use an electronic trading platform to put the entire stock market at their fingertips.