Just a few decades ago, buying individual stocks and shares on the open market would have meant calling a broker and asking them to do the transaction for you. Much like many other aspects of modern living today, the Internet has revolutionized the process of buying and selling securities. If you’ve ever watched the 2013 film, Wolf of Wall Street, starring Leonardo DiCaprio, you’ll be familiar with the way trading on the stock market was done. Fast forward to today, and it’s possible to make orders through the online platform of the best online stock broker around.
With the help of the Internet, short- and long-term investors can buy and sell stocks, bonds, and funds quickly and at a much lower cost. A trade can be completed at the cost of less than $10, whereas traditionally, it might have cost a few hundred dollars. While the process might be more straightforward, finding the right brokerage firm to help can be challenging. You can choose from many, and if you don’t know what to look for, you risk getting involved in a scam.
The following information is going to help you negotiate this minefield and find a brokerage firm that best fits your needs.
What is a Stockbroker & What Do They Do?
A stockbroker is a person who buys and sells stocks and other securities on behalf of clients. They can work for themselves or be part of a brokerage firm. The clients they trade for might be institutions or individuals.
When an investor wants to buy or sell stocks or securities, they can’t go to a store on the high street. Trades such as these take place at stock markets. NASDAQ and the New York Stock Exchange are two examples. If you want to buy stocks at either of these exchanges, you need a mediator. This person is called a broker or online stock trading broker.
Nowadays, stock trades are carried out electronically, although there are still humans that handle trades, particularly for larger investors.
A stockbroker generally knows all about the markets, and as well as facilitating your orders, they’re also able to offer advice. This advice might include the best times to buy and sell and which commodities or securities are the best at any given time. Payment for providing these services usually comes in the form of a commission. It can take the form of either a flat fee or a percentage of the value of the transaction.
There are two types of brokers you can contact if you need help.
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Full-Service Brokerage Firms
A full-service brokerage firm is a more traditional operator who works out of a brick and mortar establishment. As the name implies, this type of brokerage firm offers more than just buying and selling securities. They’re able to give you advice on how to buy stocks, and how to buy and sell investments. They also provide information regarding retirement planning and tax tips. This service is more expensive than an online discount broker, but you’re getting a service that goes above and beyond, which always comes with a hefty price tag.
Online Discount Brokers
Online discount brokers are what we’ll be looking at here. Their primary role is to help you place orders for your investments. Some, but not all of them, also offer extras, for example, research on stocks and other securities. If you’d prefer not to have to pay for additional frills, the low commission on trades made with an online broker is the way to go.
Which broker is right for you depends on your needs. You may well find yourself using the services of both kinds over the years. However, for many people, the savings you make on the commissions are valid reasons for using online discount brokers.
Benefits of Using an Online Stockbroker
Online brokers can gain a competitive edge, thanks to the use of technology. Not only does it make the placing of orders very swift, the real-time information it provides, allows them to offer the best kind of advice. Whether you’re an experienced investor or someone new to the game, using online brokerage firms can help give you an advantage. Many other benefits are also available.
A reduction in trading fees is probably the most critical reason to use an online broker. A traditional brokerage firm charges hundreds of dollars in commission. Online discount traders, on the other hand, charge as little as $5 or $10 per transaction.
Better Control and More Flexibility
The price of stocks and ETFs, shares, and other securities can rise and fall in the blink of an eye. Being able to trade swiftly is, therefore, very crucial. Online trading allows you to execute deals almost immediately. With a more traditional broker, there is a time delay because you’ve got to make an appointment or call them to place an order.
Avoidance of Brokerage Bias
With an online stock trading broker, you’re in charge of making the decisions. There’s always the worry that with a traditional broker, the advice they’re giving is in their favor. Brokerage bias might take the form of a commission for selling specific products. You remove this bias when you take trading into your own hands.
Availability of Online Tools
Several online brokers offer a wide range of tools for customers to use. Use these trading tools for information or to help optimize trades.
With the stock quotes and trade information provided, you can see how your investments are doing in real-time.
To provide a balanced picture for you, it’s only fair that we share some of the disadvantages.
Increased Risk of Making Poor Investments
Because online trading is so easy to do, it’s easy to get carried away. You may end up making poor investment decisions or investing too much. There is, however, a way to reduce the risk of this happening. It’s possible to control what you buy and how much by placing a limit order on your account.
Lack of Personal Relationships
The relationship you have with an online broker is a very autonomous one. Such a relationship might not suit you if you’d prefer to get help creating an investment strategy or with understanding the market. Choosing an online broker means you’ve got to do lots of research yourself.
Some traders experience a high when trading, much the same as a person who’s gambling. Wanting to experience that high regularly can lead to addiction.
Good Internet Connection Required
Online trading is dependent on a reliable and quick internet connection. Putting all your money on something that is not constant means you could potentially lose out on a trade or lucrative deal.
Lack of Understanding of the Process
Before you start using an online brokerage firm, you must understand how the trading platform works. Getting confused about whether a trade has been completed and making the trade again, could mean you make the deal twice and invest more than you originally intended.
How to Pick the Best Online Broker
The time is right to start investing with an online broker. New firms are opening up all the time, and competition for clients is fierce. This means the quality and variety of services is improving and costs are getting lower.
There is, however, a downside. Those of you new to investing are going to find the hunt for the right one very challenging. For those of you looking for the best online stockbroker, here are some factors you have to consider.
Online brokers offer a range of different investment options, including stocks, options, bonds, exchange-traded funds, and mutual funds. A few brokers also offer forex and futures trading — the commissions you have to pay to depend on the type of investment.
- Stocks – the commission is generally paid on a per-trade basis at a rate of between $4 and $7. Some brokers charge on a per-share basis.
- Options – trade options, and you’ll have to pay a per-contract fee on top of the stock commission. The cost is usually between $0.15 and $1.50. You might be lucky enough to find a broker that only charges one or the other.
- Bonds – generally, there’s no charge for purchasing mutual fund bonds and ETFs as long as you use no-transaction-fee mutual funds or commission-free ETFs. For individual bonds, however, you may be charged a fee.
- Exchange-Traded Funds (ETFs) – because you make ETF trades in the same way as a stock, you may find yourself paying a broker’s stock trade commission. Several brokers, however, also offer commission-free ETFs, and these are the brokers you should be choosing.
- Mutual Funds – some brokers charge for mutual funds, and some do not. It’s possible to limit the cost or avoid it altogether by using a broker that provides no-transaction-fee mutual funds. An additional charge you have to pay is the expense ratio. It’s an internal fee that’s charged by the fund, not the broker.
As well as paying commissions, you can also find yourself paying account fees. Typical fees to look out for include:
- Annual fees
- Inactivity fees
- Trading platform subscriptions
- Transferring out funds
- Closing your account
- Charges for research and data
You can’t avoid many of these fees, so your aim should be to find a broker who doesn’t bill them. Another way of avoiding some of them is to opt-out of additional services.
One of the advantages of online brokers is that you can start with small investments. When you’re new to investing, these are the brokers to be more aware of. Also, be aware that some mutual funds require minimum investments. A minimum deposit might also have to be made.
Preferred Trading Style and Different Fund Selection
How you plan to trade can have a bearing on the broker you choose. If, for example, you’re a beginner, you might prefer a broker that offers educational resources and can hold your hand. Features such as tutorials and videos or in-person seminars are going to be very useful.
When you become more experienced, an advanced trading platform is going to be more attractive. If you want to do your trading and watch the markets when you’re out and about, a mobile app might be something else you need.
A wide selection of funds in which to trade is another attractive feature.
In the modern world, companies like to attract new customers with enticing offers. Online brokers are no different, so keep an eye out for deals such as commission-free trades or cash bonuses. However, always read the small print and don’t choose a broker simply because their promotional offer is attractive.
Now you know the factors to look for in an online stock broker, let’s share a few suggestions.
Top 10 Stock Brokers for September 2020
ChoiceTrade has been offering brokerage services for almost two decades. It’s not one of the most prominent players in the industry, but it is worth a look. With investing software and super low commissions, ChoiceTrade has a lot to offer. The benefits include:
- A wide selection of trading software
- Competitive commission schedule
- Low monthly account fees for select accounts, others are free
- Free trials available for some trading platforms
- Real-time alerts and a mobile app for QuoteStream platform
- Minimum account balance of $100
- Account protection of up to $500,000
ChoiceTrade is an online brokerage firm that suits active traders. The flat $5 monthly fee, unlimited free trades, and new mobile apps are perfect. It doesn’t have many of the bells and whistles you find with other brokers, but if you already know your stuff and don’t need lots of help, it’s a very functional platform.
This online discount brokerage firm launched in 1985. It began life under the name of First Flushing Securities. It changed its name in 1997 and became Firstrade Securities Inc. At this time, it also launched itself as an online discount broker. Services offered include online and mobile trading platforms, and there are Chinese versions of the site for the Asian market. Trade with Firstrade and you can expect:
- $0 commission on all trades
- A website and platform that is easy to navigate
- A robust mobile app for trading on the move
- Excellent customer service
- No software fees
- No account maintenance fees
- Trading in stocks, options, ETFs, mutual funds, and bonds
- Services retirement plans
For all your trading and investing needs, Firstrade provides an easy one-stop-shop. To find out more visit the Firstrade website.
Tradezero is a popular online broker offering stock market trading that’s commission-free. It provides the latest trading software, high day traders leverage, a no PDT rule, and free limit order trades. If you want to keep your trading costs to a minimum, check out Tradezero’s website. Here’s a quick round-up of what’s on offer:
- Commission-free online stock trading
- Direct access to U.S. stock and options market
- A real-time streaming web platform
- A mobile app
- Pre- and post-market trading from 4:00 am to 8:00 pm
- Monthly fees waived if you trade high volumes
- 24/7 customer support
While free limit orders are an attractive point, we should point out that a limit order has to be over 200 shares to be eligible. The trade is only free when there isn’t an immediate match. If you’re buying less than 200 shares, the cost is a $0.99 flat fee. Another big downside is that non-US residents aren’t allowed to open an account.
Just2trade is one of the newer kids on the block, although it has been operating for more than a decade. With a Just2Trade account, you get access to stocks, options, futures, and futures options, together with international markets. Costs are relatively low, but they’re not free. Another disadvantage of opening an account with this broker is that a minimum account balance of $2,000 is required. You might also be charged extra if your account is considered to be inactive.
High-volume trading is what Just2Trade specializes in. If you think you fit the bill, here are some benefits.
- The execution of trades for high-volume traders can be as little as $0.001 per share and $0.35 per contract.
- Just2Trade + is a free advanced web-based trading platform that everyone can use
- A demo of the trading platform can be accessed with one click
- iOS and Android versions of the mobile app are available
- You can also access your favorite third-party platforms
Robinhood is a FINRA supervised discount broker that’s been operating since 2013. The benefits of this broker include:
- U.S. stock, options, and crypto trading that’s commission-free
- User-friendly mobile and web trading platforms
- Account opening process that’s entirely digital and fast
- No withdrawal or inactivity fees
- No minimum account balance
On the surface, Robinhood looks like a reasonable broker to use, although there are some limitations to the service.
To begin with, you have to be a U.S. or Australian citizen to open an account. While U.S. stock is free to trade, the commission is high on all non-US stocks. If you want to trade on the move, Robinhood is worth considering. Robinhood launched its mobile trading platform before its web-based trading platform, and maybe this is why it considers mobile trading to be a specialty.
Fidelity might not offer free trading commissions, but its rates are meager at just $4.95. Its reputation lies in mutual funds, but if customer reviews are anything to go by, the brokerage side of the business works well too. Some of the benefits it offers are:
- Low commissions
- Excellent customer service
- Variety of investments includes stocks, options, ETFs, mutual funds, bonds, CDs, IPOs, and precious metals
- Substantial tools and research including Active Trader Pro
- Customer service available 24/7
- No account minimum
Fidelity has much more to offer than brokerage services. Some of the other investment products include retirement and IRAs, cash management and credit cards, 529 college savings, annuities, life insurance, and charitable giving.
Merrill Edge is a Bank of America company that provides excellent customer service, low fees, and robust research options. Customers who already bank with Bank of America will appreciate being able to log in to all their accounts at the same time. Free trades are available for the bank’s customers, and there are always enticing promotions taking place. For example, the current offer is up to $600 when you invest in a Merrill Edge Self-Directed account. There are plenty of benefits that make this broker an attractive proposition.
- 24/7 customer support
- Mobile app with advanced features that perform much the same as a desktop trading platform
- Tradeable securities include stocks, bonds, mutual funds, ETFs, and options
- More than 2,000 no-transaction-fee mutual funds
- No annual or inactivity fees
- Zero account minimum
Merrill Edge funds trade commission is in line with many of its competitors, and there are also free trades for those who qualify. For high-balance traders, this broker has all you need, including a variety of investments, top-quality research, and helpful customer service that’s always available. If you’re a beginner, the website has an investor education section that’s full of useful information.
E*Trade is a US-based stockbroker, founded in 1982. It’s a safe broker to trade with because it’s regulated by SEC (The Securities and Exchange Commission), and FINRA (Financial Industry Regulatory Authority). It’s also listed on the stock exchange, has a lengthy and excellent track record and banking background. The benefits that make this brokerage firm stand out include:
- Reliable research tools that are easy to use
- Well-designed mobile trading platform
- Top-notch customer service
- A wide selection of investments, including 300 exchange-traded funds commission-free, and nearly 4,500 no-fee mutual funds
- Frequent traders are entitled to reduced commissions
- Three platforms are available – Power E*Trade, E*Trade Pro, and the E*Trade website itself, each with its own mobile app
- Access to your cash is possible with a free debit card, checking, or BillPay
As well as brokerage accounts, it also offers retirement, managed portfolio, small business, and bank services. Commissions are $6.95 on stock and options trades, which is an average figure in comparison with the competition. However, customers who make more than 30 trades per quarter only pay $4.95.
If you’re looking to conduct your banking and trading under one roof, Ally Invest can help you. It’s the online brokerage arm of Ally Financial that also includes Ally Bank. For any beginners reading this review, Ally makes a great partner to have in your corner thanks to it’s easy to use the platform and clean user experience. Other benefits include:
- Fees are $4.95 per trade or for active traders $3.95
- No account minimum
- $9.95 commission for no-load funds
- 500 commission-free exchange-traded funds
- Also offers forex trading, automated portfolio management, and free tools
- A mobile app that offers core account functions, as well as tracking, trading, and quotes
- Free research and data
- 24/7 customer support
Active traders concerned about their trading costs are the kind of customer Ally Invest wants to attract. Ally is also a great stockbroker for beginners because you’ll be looked after well thanks to the competitive commissions, useful trading tools, and user-friendly trading platform. If you’re more interested in trading stock under $2.00 per share, you’ll be better off looking elsewhere for the best penny stock brokers.
Charles Schwab Brokerage
Charles Schwab has something for all levels of trader, from the absolute beginner who wants to know how to buy stocks and all about investing, to the active trader who wants to trade on the go. Fees of just $4.95 make it one of the best with respect to commissions, but more benefits await you:
- No minimum or fees for either of its two platforms
- Top-quality support
- Inactivity on an account incurs no charges
- A mobile app that’s better than most of the competition
- Thousands of no-load, no-transaction-fee mutual funds
- Commission-free ETFs
- A range of other services available, such as retirement and IRAs, home loans, trust, estate, and charitable accounts, as well as checking accounts and savings accounts
- Able to trade stocks on foreign markets
- Charles Schwab has a network of branches across the U.S. if you’d prefer some in-person help
There are many reasons why you might want to open a Charles Schwab trading account, but we’ve only space to mention a few of them.
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A Quick and Easy Guide to Opening an Online Brokerage Account
When you’ve decided on an online brokerage company to work with, the next step is opening an account. This guide is going to help you through the process.
Types of Accounts You Could Open?
You have several options, each of which has its pros and cons. A traditional brokerage account is the right one to choose if you want to be able to access your funds and don’t want them tied up for many years to come. There are, however, no tax advantages to this account. In other words, you may have to pay tax on any profits or dividends you earn.
If you plan to save money for your retirement, an IRA is the best account to choose from. Tax deductions are available, but you can’t touch your money until you’re almost 60 years of age. A Roth IRA is another option for retirement savings, but you don’t get any tax benefits on your contributions. The tax benefits come when you make qualified withdrawals.
A third option is to open a cash account. With this account, the offer might be margin privileges, which means you’re able to borrow money to buy your sticks. Interest is paid on any borrowed money, but hopefully, you’ll make enough on the investment to cover this cost.
Finally, there are discretionary accounts. This type of account lets someone else buy or sell stock on your behalf. The kind of person you might hire to make your investment decisions for you would be a registered investment advisor.
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Make a Cost Comparison and Look at any Incentives
Different accounts incur different costs, and there may also be incentives offered. Discounts might be offered for high-volume traders, for example. Your brokerage might offer special rates if you decide to open a savings account or checking account with them. You must look at and understand all your options before deciding on a stockbroker or a type of account.
What Services Are Offered?
When deciding on your broker, the price and costs aren’t the only consideration. Of course, you’re going to want to find the lowest price, but there are other factors to take into account. For example:
- Available research – if you’re new to trading, third-party research is going to be very useful.
- Foreign trading – some brokers only trade on the U.S. markets. There are, however, others that allow you to convert your money into foreign currencies and trade on international stock exchanges.
- Trading platform – without a trading platform, you’re not going to be able to trade. Above all, the platforms offered should be user-friendly. The option of trading on the go might also be necessary, in which case you need to look for a broker with a robust mobile app.
- Convenience – as you might expect, an online stockbroker offers services online. There are some; however, that can also provide face-to-face services because they’ve got a network of real branches. One example is Merrill Edge. Customers of this broker can go to any of the 2,000 Bank of America locations for one-on-one advice and support.
- Optional Extras – there’s an endless list of extras you might be able to find. When you’re researching different brokers, make sure you spend time looking at their websites, where all the additional services will be listed.
Complete the Account Application Form
It’s possible to apply for an account online. All you have to do is provide some necessary information, such as your Social Security number, I.D., and driver’s license. For certain services, such as margin privileges or for trading options, you may need to provide some additional information and sign extra forms.
Deposit Funds in the Account
When your account application has been accepted and verified, it’s time to fund your account. There are generally several ways you can do this.
- EFT – an electronic funds transfer is by far the most convenient way to fund your account. Link a checking or savings account to your trading account and transfer the necessary funds. You can expect these funds to appear in your account the next business day.
- Wire transfer – this is the quickest way to fund your account and funds will appear within a few minutes, because it is a direct bank-to-bank transfer.
- Checks – not all brokers accept this form of payment.
- Asset transfer – this option includes transferring existing investments from another broker or rolling over a 401(k) investment.
- Stock certificates – one last option is the depositing of a paper stock certificate. Believe it or not, they do still exist in our digital world, and you can mail them to your chosen broker.
When you’re depositing funds, remember that some brokers impose a minimum requirement on their accounts.
Research Your Investments
You’ve done all the difficult things, and now it’s time for the fun of investing. However, before you start trading, spend some time learning about the different markets and investments. Learn the basics of responsible trading and understand the importance of portfolio diversification.
Tips on Trading with an Online Brokerage Firm
With enough information to make a smart decision about the best online stock broker, you’re ready to start trading. Before you start trading, however, you must educate yourself as best you can. Trading online can be an exciting endeavor, but it’s vital you keep your wits about you and not get carried away. Here are some tips to get you started.
Don’t Let Your Emotions Lead Your Investment Decisions
It’s easy to let your heart or gut rule your head when it comes to making investment decisions. However, a certain amount of control is required, or you might find yourself getting into trouble with bad investment decisions. Making trading decisions based on emotions is one of the common ways traders end up damaging their portfolios.
Choose Companies Rather Than Stocks
When it comes to trading stocks, you’re going to be bombarded with information, options, and prices. Rather than picking a stock out of a list because you like the price, delve deeper and find out more about the company behind it. Find out how it operates, what its position is in the industry, whether there are any competitors, and what its long term prospects are.
Remember to Always Plan Ahead
Try not to make hasty decisions on the spur of the moment. Instead, think of the bigger picture and remember to plan ahead. A smart thing to do is make a list of all the investments in your portfolio. Write down all the positive aspects of each investment and whether any scenarios would make you consider selling. For example, there might be something new about the business setup, or the business decides to take a new direction.
Different Types of Trading are Available
When you start online trading, there are many kinds of trade to choose from. They include the market trade, stop loss, day orders, limit trade, trailing stops, bracket trades, and good-‘til-canceled trades.
Different Types of Orders You Can Place
There are two different types of orders you can place with an online broker. A market order is one that’s placed immediately at whatever the prevailing price might be at the time. A limit order is slightly different in that the trade completes when an agreed price is reached. When you’re just a beginner, this is the best type to place because it allows you to pick an amount at which the order is filled.
What Is Your Ultimate Goal?
There is a myriad of reasons why you might want to start trading. Understanding the idea is essential because it’s going to affect the decision-making process. Particular scenarios are better suited to specific investments. If it’s your retirement you’re investing for, an IRA or Roth IRA account might be the best option. If you’re saving for college, a 529 plan is a better option. Knowing your long-term investing goals is something you should determine in the beginning.
Consider Using a Robo Advisor
Have you thought about using a Robo advisor when it comes to making your investment decisions? There are advantages to using one of these, especially if you’d prefer a more hands-off approach. With a Robo advisor service, you hand over your money every month, and it’s invested automatically according to pre-arranged preferences.
Understand How Stocks Affect Your Tax Bill
If you’re planning to be an active trader, you’re going to need to know how each of your positions can affect your tax bill. Each position is different; for example, you pay more to the IRS in taxes if the length of time you hold a stock is short.
Practice Trading with Fake Money
Believe it or not, it’s possible to practice trading before you invest your hard-earned cash. Demo accounts and practice simulators can be a great way to get used to the trading process. Best of all, you’re not risking any of your own money. If you want to make a profit with your investments, eventually it’s a good idea to develop some confidence. Being able to trade without your mistakes, costing you money should play a part in your overall investment strategy.
Demo accounts can be used for trading the foreign exchange markets, stocks, or futures. You get to monitor market conditions, understand and make good use of charting tools and indicators, learn how to execute your trades, and practice all the other aspects of trading. You’ll find many of the top online brokers offer this kind of service. Even if you decide not to open a real money trading account with them, you’ll be learning valuable lessons.
In addition to getting in some practice, you should also aim to read up on the subject. There are some handy books available in hardcopy and online. Do you have a friend you can go to for advice? A good mentor will keep your spirits up, point you in the right direction, and will be open to answering questions.
A Final Word of Advice
One last tip for those of you who want to learn more about trading is to make use of news sites such as CNBC and MarketWatch. They’re both excellent resources for beginners who are in the process of learning how to trade.
Investing in the stock market and other types of securities is an excellent way to grow your wealth. You do, however, need to have the right partner in your corner. Finding the best online stock broker is an essential part of your investment strategy, and you’ve now got all the information you need to make the right decision. Some details of the best brokers have been shared in our broker review section. We’ve given you some pointers if you want to look for one by yourself.
We understand how important it is to provide the best information and do our utmost to ensure what we say is transparent and up to date. There is, however, no substitute for real-life experiences, which is why we always enjoy hearing from our readers. If you’re about to embark on a trading journey, we’d love to hear how it goes. Thousands of others would also benefit from your input. Take a few minutes to leave a comment or two. If there’s anything we’ve missed in our brokers for beginners and best brokers guide, we’ll make sure we take what you say to heart and make the necessary changes.