It is worth using a discount stock broker? I heard they might not get the best price on a trade?
They're not negotiating trade rates for you, you set the trade rates in your order. What they might have is a slightly slower system, delivering your orders a second later than the competition would. If that's critical to you then you should look at that, otherwise look at their fees, customer support and research aids because that's where the broker value is. "Always use limit orders never market orders. Period. Do that and you will always pay what you said you would when the transaction goes through. Whichever broker you use is not going to ""negotiate"" for the best price on your trade if you choose a market order.  Their job is to fill that order so they will always buy it for more than market and sell it for less to ensure the order goes through. It is not even a factor when choosing between TradeKing and Scottrade. I use Trade King and my friend uses ScottTrade.  Besides the transaction fee (TK is a few $$ cheaper), the only other things to consider are the tools and research (and customer service if you need it) that each site offers. I went with TK and the lower transaction fee since tools and research can be had from other sources. I basically only use it when I want to make a trade since I don't find the tools particularly useful and I never take an analyst's opinion of a stock at face value anyway since everybody always has their own agenda."
"Also, in the next sentence, what is buyers commission? Is it referring to the share holder? Or potential share holder? And why does the buyer get commission?  The buyer doesn't get a commission.  The buyer pays a commission.  So normally a buyer would say, ""I want to buy a hundred shares at $20.""  The broker would then charge the buyer a commission.  Assuming 4%, the commission would be  So the total cost to the buyer is $2080 and the seller receives $2000.  The buyer paid a commission of $80 as the buyer's commission.   In the case of an IPO, the seller often pays the commission.  So the buyer might pay $2000 for a hundred shares which have a 7% commission.  The brokering agent (or agents may share) pockets a commission of $140.  Total paid to the seller is $1860.   Some might argue that the buyer pays either way, as the seller receives money in the transaction.  That's a reasonable outlook.  A better way to say this might be that typical trades bill the buyer directly for commission while IPO purchases bill the seller.  In the typical trade, the buyer negotiates the commission with the broker.  In an IPO, the seller does (with the underwriter).   Another issue with an IPO is that there are more parties getting commission than just one.  As a general rule, you still call your broker to purchase the stock.  The broker still expects a commission.  But the IPO underwriter also expects a commission.  So the 7% commission might be split between the IPO underwriter (works for the selling company) and the broker (works for the buyer).   The broker has more work to do than normal.  They have to put in the buyer's purchase request and manage the price negotiation.  In most purchases, you just say something like ""I want to offer $20 a share"" or ""I want to purchase at the market price.""  In an IPO, they may increase the price, asking for $25 a share.  And they may do that multiple times.  Your broker has to come back to you each time and get a new authorization at the higher price.  And you still might not get the number of shares that you requested.   Beyond all this, you may still be better off buying an IPO than waiting until the next day.  Sure, you pay more commission, but you also may be buying at a lower price.  If the IPO price is $20 but the price climbs to $30, you would have been better off paying the IPO price even with the higher commission.  However, if the IPO price is $20 and the price falls to $19.20, you'd be better off buying at $19.20 after the IPO.  Even though in that case, you'd pay the 4% commission on top of the $19.20, so about $19.97.   I think that the overall point of the passage is that the IPO underwriter makes the most money by convincing you to pay as high an IPO price as possible.  And once they do that, they're out of the picture.  Your broker will still be your broker later.  So the IPO underwriter has a lot of incentive to encourage you to participate in the IPO instead of waiting until the next day.  The broker doesn't care much either way.  They want you to buy and sell something.  The IPO or something else.  They don't care much as to what.   The underwriter may overprice the stock, as that maximizes their return.  If they can convince enough people to overpay, they don't care that the stock falls the day after that.  All their marketing effort is to try to achieve that result.  They want you to believe that your $20 purchase will go up to $30 the next day.  But it might not.   These numbers may not be accurate.  Obviously the $20 stock price is made up.  But the 4% and 7% numbers may also be inaccurate.  Modern online brokers are very competitive and may charge a flat fee rather than a percentage.  The book may be giving you older numbers that were correct in 1983 (or whatever year).  The buyer's commission could also be lower than 4%, as the seller also may be charged a commission.  If each pays 2%, that's about 4% total but split between a buyer's commission and a seller's commission." That is absolute rubbish.  Warren Buffet follows simple value and GARP tenants that literally anyone could follow if they had the discipline to do so.  I have never once heard of an investment made by Warren Buffet that wasn't rooted in fundamentals and easy to understand.  The concept is fairly simple as is the math, buying great companies trading at discounts to what they are worth due to market fluctuations, emotionality, or overreactions to key sectors etc.  If I buy ABC corp at $10 knowing it is worth $20, it could go down or trade sideways for FIVE YEARS doing seemingly nothing and then one day catch up with its worth due to any number of factors.  In that case, my 100% return which took five years to actualize accounts for an average 20% return per year.  Also (and this should be obvious), but diversification is a double edged sword.  Every year, hundreds of stocks individually beat the market return.  Owning any one of these stocks as your only holding would mean that YOU beat the market.  As you buy more stocks and diversify your return will get closer and closer to that of an index or mutual fund.  My advice is to stick to fundamentals like value and GARP investing, learn to separate when the market is being silly from when it is responding to a genuine concern, do your own homework and analysis on the stocks you buy, BE PATIENT after buying stock that your analysis gives you confidence in, and don't over diversify.  If you do these things, congrats.  YOU ARE Warren Buffet. What is a good resource to learn about options trading strategies? Options are a quite advanced investment form, and you'd do well to learn a lot about them before attempting to dive into this fairly illiquid market. Yale's online course in financial markets covers the Options Market and is a good starting point to make sure you've got all the basics. You may be familiar with most of it, but it's a decent refresher on lingo and Black-Scholes. How can I use options to establish some cash flow from long standing investments while minimizing capital gains expenses? This question seems designed to get people to talk about covered calls. Essentially, you sell call contracts: you let people buy things you already have at a price in the future, at their whim. They pay you for this option, though usually not much if the options aren't in the money. You can think of this as trading any return above the call option for a bit of extra cash.  I don't invest with taxable accounts, but there are significant tax consequences for options. Because they expire, there will be turnover in your portfolio, and up front income when you take the sell side. So if you trade in options with close expiration dates, you'll probably end up with a lot of short-term capital gains, which are treated as normal income. One strategy is to trade in broad-based stock index options, which have favorable tax treatments. Some people have abused this though to disguise normal income as capital gains, so it could go away. Obviously the easy approach is to just use a tax advantaged account for options trading. An ETF might also be able to handle the turnover on your behalf, for example VIX is a series of options on S&P500 options. A second strategy I've heard of is buying calls and puts at a given strike price. For example, if you bought Dec '13 calls and puts on SPX @ 115 today, it would cost you about $35 dollars. If the price moves more than 35 dollars away from 115 by DEC '13 (in either direction), you've made a profit. If you reflect on that for a bit, you'll see why VIX is considered a volatility index. I guess I should mention that shorting a stock and buying a put option at the market price are very similar, with the exception that your loss is limited to the price of the option.  Is there ever an instance where options investing is not speculative? The term 'speculative' is not well defined. For many people, the answer is no. It's very easy to just buy put options and wait for prices to fall, or call options and wait for prices to rise. Moreover, the second strategy above essentially gives you similar performance to a stock without paying full price. These all fall under the headline of increasing a risk portfolio rather than decreasing it, which I figure is a decent definition of speculation. On the other hand, there are ways to use options minimize risk rather than increase it. You can buy underwater options as portfolio insurance, if your portfolio drops below a certain amount, you still have the right to sell it at a higher one. And the Case-Schiller index is run in part, on the hopes that one day there might be a thriving market for real estate options (or futures). When you buy a home or lend money to someone to buy one, you could buy regional Case-Schiller options to protect you if the regional market tanks. But in all of these cases, it's required for someone else to take the opposite trade. Risk isn't reduced, it's traded around. So technically, there is a speculative element to these as well. I think the proper question here is whether speculation is present, but whether speculation can be put to good ends. Without speculators, the already very thin market for options would shrivel faster. "In the case of an ""initial public offering"", the brokers underwriting the share issue will look at the current earnings being generated by the company and compare these to those of other competitor companies already listed in the stock market.  For example, if a new telephone company is undertaking an initial public offering, then the share price of those telephone companies which are already traded on the stock market will serve as a reference for how much investors will be willing to pay for the new company's shares.  If investors are willing to pay 15 times earnings for telecom shares, then this will be the benchmark used in determining the new share price. In addition, comparative growth prospects will be taken into account.  Finally, the underwriter will want to see a successful sale, so they will tend to ""slightly under price"" the new shares in order to make them attractive. None of this is an exact science and we often see shares trading at a large premium to the initial offer price during the first few days of trading.  More often that not, prices then settle down to something closer to the offer price.  The initial price spike is usually the result of high demand for the shares by investors who believe that past examples of a price spike will repeat with this initial public offering.  There will also usually be high demand for the new shares from funds that specialise in shares of the type being issued. In the case of a ""rights issue"", where an existing publicly traded company wishes to raise capital by issuing new shares, the company will price the new shares at a significant discount to the current market price.  The new shares will be initially offered to existing shares holders and the discounted price is intended to encourage the existing shareholders to exercise their ""rights"" since the new shares may have the effect of diluting the value of their shares.  Any shares which are not purchased by existing share holder will then be offered for sale in the market." "Stock prices are set by bidding. In principle, a seller will say, ""I want $80."" If he can't find anyone willing to buy at that price, he'll either decide not to sell after all, or he'll lower his price. Likewise, a buyer will say, ""I'll pay $70."" If he can't find anyone willing to pay that price, he'll either decide not to buy or he'll increase his price. For most stocks there are many buyers and many sellers all the time, so there's a constant interplay. The typical small investor has VERY little control of the price. You say, ""I want to buy 10 shares of XYZ Corporation and my maximum price is $20."" If the current trending price is below $20, your broker will buy it for you. If not, he won't. You normally have some time limit on the order, so if the price falls within your range within that time period, your broker will buy. That is, your choice is basically to buy or not buy, or sell or not sell, at the current price. You have little opportunity to really negotiate a better price. If you have a significant percentage of a company's total stock, different story. In real life, most stocks are being traded constantly, so buyers and sellers both have a pretty good idea of the current price. If the last sale was ten minutes ago for $20, it's unlikely anyone's going to now bid $100. They're going to bid $20.50 or $19.25 or some such. If the last sale was for $20 and your broker really came to the floor and offered to buy for $100, I suppose someone would sell to him very quickly before he realized what an outrageous price this was. I use TD Ameritrade, and on their web site, if I give a price limit on a buy that's more than a small percentage above the last sale, they reject it as an error. I forget the exact number but they won't even accept a bid of $80 if the stock is going for $40. They might accept $41 or $42, something like that." Cheaper would refer to the fees of a fund rather than the share price, IMO. Are 2 quarters worth more or less than 10 nickels? This is another way to express your question though most open-end funds bought directly from the fund family or through fund supermarkets would do fractional shares that may be better than going through ETFs though there can be some brokers like Sharebuilder that used to do fractional shares though not necessarily having the best execution as I recall. One such strategy I have heard for those who have this opportunity is to purchase the maximum allowed. When the window to sell opens, sell all of your shares and repurchase the most you can with the amount you gained (or keep an equivalent to avoid another transaction fee). This allows you to buy at a discount, and spread out the risk by investing elsewhere.  This way you are really only exposing yourself to lose money which you wouldn't have had access to without the stock discount. To add to Dheer's point, the vast majority of retail investors will have to pay fees and use up a large amount of valuable time on the entrance and exit of each stock, and each and every time you rebalance as the index weightings change. These also add up extremely fast vs the few basis points the large and liquid ETFs charge for this service.