Are Stock Brokers Necessary? Or, Can You Trade Without Them?

As an investor, trading the best stock setups will bring you financial success. If you are just getting started, you may wonder whether to use a broker, open a brokerage account, or start trading on your own. Stock brokers are beneficial, but are they necessary, and can you trade without one?

Stock brokers are necessary, but you can still trade without one. Companies now offer direct stock purchase plans where you participate without the help of a broker. If you are just getting started, this can help you save on commissions and help gain control over your trades.

The rest of this article will give a detailed explanation of how you can trade without a broker and the benefits and disadvantages of being your own broker.

IMPORTANT SIDENOTE: I surveyed 1500+ traders to understand how social trading impacted their trading outcomes. The results shocked my belief system! Read my latest article: ‘Exploring Social Trading: Community, Profit, and Collaboration’ for my in-depth findings through the data collected from this survey!

3 Ways To Trade Without a Broker

When going through a financial crisis, relying on a broker may be the last thing you want to do. You want to avoid cases of fraud and paying an excessive amount of fees. If you are willing to put in effort and trade without a broker, there are three ways to do so.

Invest Through Direct Stock Purchase Plans (DSPPs)

DSPPs are advantageous because they allow you to invest with a fixed amount of dollars each month in a strategy known as Dollar-Cost Averaging. Sometimes the stock price goes high and sometimes low, but eventually, it will go up. With this strategy, you reduce the risk of making a large investment at the wrong time. It is the same strategy you will use when investing in a 403(b) or 401(k).

When using the Dollar-Cost Averaging strategy, during each month, the dollar remains the same. However, due to price fluctuations, the number of shares bought will vary. The market has historically shown high returns in the long term; hence investors using the DCA strategy can ignore short-term investments.

Identify the company you want to invest with, especially the large public corporations that experience many public trades. Use investment websites to find information from company databases. Search by location, industry, and investment strategies. Afterward, perform an advanced search to filter companies according to the initial amount of investment.

View information regarding features and plan fees, and once you are satisfied with one, register, and place your investment. On the company website on the investor’s page, you will find a link to information on DSPPs that will take you to the transfer agent and give you information on all the fees requirements.

Invest Through Dividend Reinvestment Plans (DRIPs)

When you are a stock shareholder in a company, you have the option of having monthly dividends sent to you or reinvesting them to purchase more stock. The latter is what is known as a DRIP (Dividend Reinvestment Plan). Several companies offer DSPP and DRIP. However, you cannot invest through DRIP unless you own at least one stock of the company that you plan to invest in. 

Enrolling in DRIP is advantageous because it is affordable with few or no commission fees. It is simple to work with because there is the automation of processes, reducing the need for frequent monitoring. With DRIP, you can purchase fractional shares that are lucrative; this means that you purchase less of a full share at a go instead of holding onto cash and investing all of it when it builds up.

Choose a reinvestment option for your dividends, either a full or partial enrollment plan. With a partial reinvestment plan, you are paid part of the dividends while the rest is reinvested in the company. With the full reinvestment option, all monthly dividends are used to purchase more shares. When your monthly dividends are insufficient to buy additional shares, they are left to accrue until they are enough to make a purchase.

Create an Online Brokerage Account

First, you need to understand the difference between a full-service broker and an online brokerage account. Full-service brokers will offer a range of investment products and services at a higher fee and commission structure, while online and discount brokers charge a small commission but do not provide investment advice.

Discount online brokers are an excellent option if you want to invest directly on your own and avoid high commissions. However, you will research on your own and will not rely on a broker’s advice to be successful. When selecting an online broker, ensure you learn the kind of support they offer on their website. Be sure to call and inquire on minimum balances, deposits, special promotions, and other fees that they charge.

Benefits of Trading Without a Stock Broker

Being your own stock broker has many benefits. Some of the most important advantages of trading without a broker are as follows –

• Lower costs of the transaction – Unlike working with a full-service broker, trading without a stock broker eliminates commissions that would otherwise be charged on every trade. Equally, transaction costs such as withdrawal fees are lower.

• Trading is more responsive – Choosing to go into investment and trading by yourself, with a reliable online platform, allows you to react effectively to market changes and news announcements that may have an impact on your assets.

• You have better access to financial markets – Large corporations are highly traded publicly; hence working with them instead of a stock broker exposes you to better financial markets. Granting access to enabling features like trailing stops and contingent orders and financial markets to your online platform will allow you to lock out losing options automatically.

• Better awareness of trading losses and profits – Trading on your own forces you to be more careful and knowledgeable about the trades you make that you wouldn’t pay attention to when working with a stock broker. Equally, you learn how to use charts and other powerful tools to predict price and stock movements and place accurate trades.

• You can improve your investment skills – Trading without a stock broker requires that you perform a lot of research to learn and understand the mechanics of the stock markets. You will improve your investment skills by learning how to watch the market closely and have good timing when executing your trades.

Here is a YouTube video on how to buy stock without a broker:

Disadvantages of Trading Without a Stock Broker

When you choose to trade with DSPPs and DRIPs, there are drawbacks you will encounter. The most impactful of these drawbacks are as follows – 

• Lack of convenience – Working with a stock broker enhances convenience because their documentation and trade log maintenance is top-notch. With them, paperwork is consolidated and can appear on one statement, instead of you accounting for profits and losses across hundreds of trades for IRS and calculating taxes on profits from dividend stocks.

• Missing out on profits – DRIP investors are disciplined and are less likely to be irrational when selling company shares. DRIP investors must wait for an increase in the value of their dividends before receiving a reward. But, selling stocks accrued through DRIPs is not as quick as simply clicking a button. The execution of these trades take time. On the flip side, executing trades with stock brokers is easy and fast; therefore, DRIP investors might potentially miss out on profits when they sell their shares before realizing any gains. Also, selling DRIP can take weeks before an investor receives proceeds, while with a stock broker, it will only be a matter of days to process the transaction.

• Fewer opportunities – When investing in DRIPs, you will only have about 1200 stocks to choose from compared to thousands of stocks made accessible by stock brokers. You will end up missing out on a larger universe of stocks because some companies, especially those that are high-growth technology, don’t offer DRIPs because they don’t pay dividends to investors.

• Lack of control – The aim of trading without a stock broker is to gain control over your stocks and trades. However, with DSPPs and DRIPs, you have no control over trading price and date. Also, you have to keep track of stock purchase costs and a multitude of annual transactions.

Author’s Recommendations: Top Trading and Investment Resources To Consider

Before concluding this article, I wanted to share few trading and investment resources that I have vetted, with the help of 50+ consistently profitable traders, for you. I am confident that you will greatly benefit in your trading journey by considering one or more of these resources.

• Roadmap to Becoming a Consistently Profitable Trader: I surveyed 5000+ traders (and interviewed 50+ profitable traders) to create the best possible step by step trading guide for you. Read my article: ‘7 Proven Steps To Profitable Trading’ to learn about my findings from surveying 5000+ traders, and to learn how these learnings can be leveraged to your advantage.

• Best Broker For Trading Success: I reviewed 15+ brokers and discussed my findings with 50+ consistently profitable traders. Post all that assessment, the best all round broker that our collective minds picked was M1 Finance. If you are looking to open a brokerage account, choose M1 Finance. You just cannot go wrong with it! Click Here To Sign Up for M1 Finance Today!

• Best Trading Courses You Can Take For Free (or at extremely low cost): I reviewed 30+ trading courses to recommend you the best resource, and found Trading Strategies in Emerging Markets Specialization on Coursera to beat every other course on the market. Plus, if you complete this course within 7 days, it will cost you nothing and will be absolutely free! Click Here To Sign Up Today! (If you don’t find this course valuable, you can cancel anytime within the 7 days trial period and pay nothing.)

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Conclusion

Even though stock brokers offer many perks when you trade with them, you can execute trades without them and avoid the hefty commission fees. To buy and sell without a stock broker, you can invest through DSPPs (Direct Stock Purchase Plans), DRIPs (Dividend Reinvestment Plans), or open an online brokerage account.

These have their advantages, such as lower transaction costs, responsive trading, and improved investment skills. However, there are also downsides to taking this route as you miss out on a number of tradable instruments, there is a lack of convenience, and you won’t have informed guidance, unlike when you work with stock brokers.

BEFORE YOU GO: Don’t forget to check out my latest article – ‘Exploring Social Trading: Community, Profit, and Collaboration’. I surveyed 1500+ traders to identify the impact social trading can have on your trading performance, and shared all my findings in this article. No matter where you are in your trading journey today, I am confident that you will find this article helpful!

Affiliate Disclosure: We participate in several affiliate programs and may be compensated if you make a purchase using our referral link, at no additional cost to you. You can, however, trust the integrity of our recommendation. Affiliate programs exist even for products that we are not recommending. We only choose to recommend you the products that we actually believe in.

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