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Are online brokers safe?

Many online brokers are insured by the Securities Investor Protection Corporation—often referred to simply as the SIPC—which protects investors if a brokerage fails. Many brokers also carry additional private insurance for the same purpose. Neither coverage protects you from market losses. With a full-service brokerage, you typically get a wide range of services and a one-on-one relationship with a stockbroker—maybe also a financial advisor. They can help you cope with market meltdowns. They also can custom-tailor your financial plan, including individual investments, to your individual needs and goals. So can educational resources at an online broker. But full-service brokerage costs customarily are much higher, meaning that an online broker is cost-wise safer if you’re willing to do a lot of your own research and planning. Impulse trading, especially amid market volatility, is a key risk for do-it-yourself investors who trade through an online broker. But you can defend yourself by taking advantage of an online broker’s educational resources and research tools, then maintaining your discipline.

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