Bid-Ask Spread
Stock brokers charge clients a commission for executing their trades. They also earn money from the bid-ask spread. Example – If you ask a broker for a quote for 1 share of Citi and receive the following price: “3.10, 3.20”, it means that the broker is willing to buy(from you) 1 share of Citi for $3.10 and sell(to you) 1 share of Citi for $3.20.

Here, the bid price is $3.10 and the ask price is $3.20.Notice that if the broker buys 1 share at $ 3.10 and sells it at $3.20, she will make a profit of $0.10 . This difference in the ask price and the bid price is known as the bid-ask spread.

Brokers
Cost is a very important consideration in choosing a broker as commissions and spreads can add up to a substantial sum especially for active traders. Most brokers allow clients to place orders online or via telephone. Deep Discount brokers charge very low commissions and can provide reasonable execution. Most brokers also offer access to global markets. Therefore, it should be possible for a trader based in Singapore to buy stocks traded on the NYSE through his broker in Singapore.

Costs
Commissions typically amount to about 0.25% of the value of the trade. The catch here is that most brokerages charge a “minimum commission”. That would imply that the client could end up paying $20 as commission for buying a stock worth $1. Minimum commissions vary across countries. They typically stand at around US$10 in USA, SGD 25 in Singapore and INR 25-50 in India.* Some brokers offer very good “per-trade” rates subject to a minimum number of trades every month.

The broker not only executes trades on the client’s behalf but can also provide research reports that help clients make better trading decisions. Different levels of service are available for different fees. These usually pertain to trade execution and research reports. In my opinion, beginners need not lose sleep over these details.

Some Brokers
USA:  Charles Schwab, E-Trade
Singapore: Kim Eng Securities, CIMB
India: HDFC Securities, ICICI Securities

* Clients should contact their brokers for detailed information in this regard.