If you’re wondering how to buy stocks online without a broker, you should know that it’s not easy. Moreover, for 99.99% of investors it’s just not worth it. To effectively buy shares of US companies without going through a broker, like an Ally Invest, or a TD Ameritrade, you need to become a member of a US stock exchange. Sounds simple, right? Wrong.
Even if you spend tens of thousands of dollar per month to lease a seat on a US stock exchange (or spend millions to buy one), like the NYSE or NASDAQ, you will still need to have a clearing firm that clears your trades, unless you plan on starting one of those from scratch.
How can I Buy Stocks Online Without a Broker?
Realistically, you cannot. There is a reason why online brokers exist. They make the process easier, and possible. While it is possible to work for a publicly listed company, and use an Employee Stock Purchase Plan to acquire shares, or be granted employee stock options, this is not a practical means of investing. Plus, you’ll only be able to buy shares of one stock, the company that you work for. This offers no diversification and no way to reduce cost basis by employing basic options trading strategies like covered calls.
Simply put, if you want to buy stocks online, you need a broker. And in 2018, there’s no reason not to use the best online stock brokers to place your trades. Paying $4 per trade is a very small price to pay for endless stock market research, free trading tools and software, and 24/7 customer service agents that are ready to help you trade.
If your heart is truly set on investing without a broker, you’ll have to do the following:
- Step 1: Lease or buy a seat on a stock exchange ($100k+)
- Step 2: Pass the stock exchange ethics board (strict requirements, similar to ethics board for bar exam)
- Step 3: Start your own clearing firm that is a member of the NYSE and/or NASDAQ
Stock Trading Commissions Have Dropped Dramatically
With the advent of technology and the intense competition of the online brokerage industry, the price retail traders have to pay to buy and sell stocks has fallen dramatically. In 1980, according to Business Insider, the average price to trade stocks in 1980 was around $45! Even recently, brokerage giants like Charles Schwab and Fidelity charged over $9.99 per trade.
We estimate the average price to trade stocks in 2018 is somewhere around $6.00 per trade. Trading costs have never been lower for retail traders.
Best Brokers to Buy Stocks Online
Stock brokers are not created equal. Some have higher fees than others. Some have better customer service than others. And some have better trading platforms than others.
Because of the lowest commissions in the industry and unbeatable 24/7 customer service, Ally Invest is the best stock broker of 2018.
A valuable promotion for new Ally Invest clients: Up to $3,500 cash bonus + commission free trades for new accounts. Learn More.
TradeStation is one of the most popular online discount stock brokers because they offer great trading technology and and very low commissions.
A valuable promotion for new TradeStation clients: All-New Pricing. Now Only $5/Trade + No Software Fees.
Should I Buy Stocks and Invest?
This is a really interesting question. There’s a great book called, Your Money or Your Life by Joe Dominguez, and one of the key concepts is how, as society is currently structured, we have to trade our limited time for money. Most of us never break out of this cycle and will have to trade our time for money our entire lives.
Joe Dominguez was a successful analyst on Wall street for many years, and the idea of financial freedom, according to him, was to build up an asset base (relatively early on in one’s life) that can produce income on its own. What does this mean? It means, in your career, when you finally save up enough money, you can begin to trade your money for more money money.
The moment the income from your investments surpasses your living expenses, and then some, you are said to be financially free. So, to answer the question of should you buy stocks and invest, it really depends on your asset base, your income, and your risk tolerance. If you have any amount of extra cash, even if it is $5,000, it behooves you to invest it prudently, minimizing the chance of loss. Because, if you do nothing, you will actually lose money over time due to inflation. $5,000 is not what is was 10 years ago, and nowhere close to what it was 30 years ago.
Simply put, if you’re not putting your cash to work (whether it’s in bonds, stocks, money market funds, CDs, etc., you’re losing money.
Tips on Generating Income from Stocks
Sometimes, just buying a diversified basket of stocks is not enough to create relatively consistent monthly income. Luckily, there are derivatives, called options, that investors can use to generate additional income on just about any investment portfolio. Specifically, investors can use call options to reduce their overall cost-basis on their portfolio.
- Look to sell monthly call options (12 times per year)
- Use an options broker with the lowest fees
- Never sell more than 1 call per 100 shares of stock
The covered call options trading strategy does not add any additional risk. Covered calls are similar to a landlord owning a house, and renting it out. Every month, the landlord reduces the cost-basis of his house when he collects rent from the tenant.
Alternatives to Buying Stocks
In a recent survey by BankRate showed that just 13% of millennials have an interest in investing in the stock market.
If you don’t want to risk your money in the stock market, consider this alternative way to invest your money online.
Invest In Private Real Estate
Fundrise is an amazing tool to gain access to the growing private real estate market.
By purchasing inexpensive private real estate and creating a diversified portfolio, Fundrise has returned nearly 12% to clients every year since 2014, after fees.
With an annual management fee of just 1%, and proven historical returns of around 12%, Fundrise is an excellent investment alternative to the stock market.
- Easily invest in commercial real estate
- Free to sign up for an account
- 90 day 100% satisfaction guarantee
- 2017 performance of 11.44% ROI
Final thoughts
Unfortunately, the process of learning how to buy stocks online without a broker is difficult, expensive (to the tune of hundreds of thousands of dollars), and wildly inefficient. The reason why stock brokers exist is because they “broker” the transaction. they connect a buyer and a seller.
Most stock brokers are members of the major stock exchanges, and they pay hefty fees to join and receive market data. Since they have a large number of clients, these fees are worth it. It’s not practical for one person to become a member of multiple exchanges, start their own clearing firm or hire a clearing firm, and pay professional fees for market data.
Right now, you can invest in stocks for as little as $3 dollars. This is a steal, and it is monumentally less expensive than trying to buy stocks online without a broker.
