Should You Trust Online Broker Research Tools?    Bookmark and Share

Do you use an online stock broker? If you are like most individual investors, chances are that you do. Online brokers are great for many reasons. Most provide an easy and inexpensive way for the average investor to buy their own stocks online. However, there is one potential downside to using online brokers. For investors, relying solely on broker trading tools to do your own stock research can spell disaster. Here's why.

First, let's explore how online brokers make money. Online brokers make their money via commission when you buy and sell stocks using their services. They typically charge between $5 and $15 per trade. If you are a long-term buy and hold type of investor who only makes 5-10 trades per year, the broker wouldn't make very much money from you. For this reason, it is in their interest to encourage you to buy and sell stocks as much as possible. But how do they do this?

Most online brokers offer tools that cater only to traders, and encourage you to use strategies that lead to frequent trading. Most brokers tout their advanced charts or tools that help with technical analysis. They offer tools to help you spot short-term buying and selling opportunities, so you make as many trades as possible, with the goal of maximizing their own commission revenue.

Think about it this way. Would you ever walk into a car dealership and ask them how often you should buy a new car? Probably not, because they would probably try to convince you to buy a new car every year, since they make money every time they sell you a car. In the same way, why would you let your broker dictate how often you should buy and sell stocks?

But what do you do if you are an investor who likes to buy stocks of quality companies and hold them for extended periods of time? Simply put, you will need to learn how to rely on your own knowledge, formulate your own research strategy, and find the right tools and information to help guide you in your investing.

Fortunately, there are plenty of sites out there that provide good information that can help investors with their investing research. Learning how to use them to find and interpret all of the information that is available can make the difference between the average and successful investor. To find some good sites to use for each aspect of online investing, check out our free guide to online investing.

So if you are an investor and your broker claims to offer revolutionary tools to help you become a better trader, don't take the bait. Learn how to research stocks on your own and invest for the long term. In the long-term, you'll spend a lot less money on commissions and learn to spot companies with long-term investment potential.

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