Updated July 27, 2015

Study: Best Online Stock Broker for Beginners

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Which online broker is best for beginners? Read this in-depth comparison to see which stockbroker is best for ease-of-use, fees, and educational materials.

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In today's do-it-yourself world, not everyone wants to pay the higher fees for a financial advisor or portfolio manager. The abundance of online brokerages suggests that trading and managing your own portfolio is an enticing prospect. But if all you really know about self-directed investing is talking babies, how do you know what brokerage you should choose?

First, don’t rely on a humorous ad as a reliable source. When it's time to get down to business and figure out your money's earning potential, research is your best bet for finding the brokerage that suits your needs and investment strategies, and we’ve done some major legwork for you.

Online brokerages, for the most part, operate under the same principle: to offer a wide-range of investment products plus an efficient platform for trade execution. And, of course, you’ll want to consider those that charge a relatively low commission (no sense giving away more of your investing earnings away than you have to, right?). But not all brokerages are created equal, with some specializing in certain products, some offering very sophisticated tools and research that have steep learning curves but are quite helpful, and some that are just too complicated for beginners to tackle.

To help you decide which brokerage might work for your foray into DIY investing, CreditDonkey took a look at several top online brokerages — E-Trade, OptionsXpress and TradeKing (now Ally Invest) — three that tend to be user-friendly and good for novices.

STUDY METHODOLOGY

  1. Ease of Use
  2. Fees and Initial Deposit
  3. Research and Tools
  4. Investment Choices

Self-directed investing can be intimidating, especially to a newbie. There's a steep learning curve when it comes to investing, and sometimes decisions need to be made in split seconds to capitalize on a trade. The last thing you want is a complicated platform that is difficult to navigate. You'll want tools and research at your disposable that are seamless to find and use.

In addition to the money you're going to invest, you're going to have to pay fees and commissions in exchange for the brokerage's services. Look for a brokerage that has no hidden fees but also be aware that you get what you pay for, and you may want to pay the extra price per trade to have access to the platform that best suits your investment needs.

Research and strategy are of the utmost importance for your portfolio to be profitable, especially when you are starting out. A mix of helpful videos and articles from a reputable site that you can tap into as you go could justify the price of investing. More importantly, as you advance, you'll also want access to charting, real-time quotes, and current investment trends.

There are a wide variety of investment options out there, including stocks, ETFs (electronically traded funds), bonds, stock options, futures, pink sheets, IRAs, and forex, among the most popular. Not all brokerages are created equal, however, when it comes to all investments available to you, so it's important to choose the brokerage that has the products you want to trade in.

BEST ONLINE BROKERAGE FOR BEGINNERS FOR EASE-OF-USE

E*TRADE

  • Ease of Use: Easy-to-follow, intuitive platform with simple navigation 5/5
  • Fees/Initial Deposit: $6.95 per stock trade; $500 minimum required to open account 3/5
  • Research and Tools: Extensive set of tools including real-time quotes and charting, videos, and E-Trade Pro 5/5
  • Investment Choices: Broad, including stocks, ETFs, futures, IRAs and pink sheets 5/5
  • CreditDonkey Score: 4.5/5

If you watch football (or at least watch the commercials), you've probably heard of E-Trade. And by advertising to the masses, E-Trade is making it clear that its strategy includes luring beginner investors to its site and giving them reasons to stay. Its educational materials specify which tutorials are made for more advanced investors and which are good for beginners, so you'll be in the know from the get-go.

Why We Like It
A first visit to the E-Trade website will not scare beginners away, as the well laid-out homepage allows you to fairly quickly navigate to any product or educational tool. It provides a wide variety of investment choices and an abundance of research. Investors new to brokerages are often interested in IRAs and all the tax advantages those retirement savings tools offer, and E-Trade offers a variety of them, including the Traditional and Roth IRA, with no account minimums and no annual fee. And E-Trade's mobile platform is well-designed so that even newbie investors should be able to trade on the go after a few warm-ups on the main site.

The Downsides
The $6.95 fee per trade is a bit steep compared to other online brokerages, and as a beginner, it's a toss up if you'll make over 30 trades per quarter to qualify for the $4.95 reduced fee. A $500 initial deposit isn't that high if you're getting into the investment game, but you can't get real hands-on experience with the platform unless you actually open the account and plop money inside. And E-Trade Pro, which provides an advanced interface with sophisticated charting, is available only to those who make at least 30 trades per quarter.

Mutual funds are another popular investment for beginning investors because they have a lower risk factor, but E-Trade’s $19.99 for load funds is a bit high. Also, if you find that trading on your own is slightly overwhelming, E-Trade does offer professionals who can manage your portfolio for you, but you'll need to have at least $25,000 in capital to start and also pay an annual advisory fee.

Who It Works Best For
Novice investors who aren't ready to go big but are just looking to get their feet wet, along with beginners who've tried the self-investment game and aren't yet comfortable enough to go at it on their own and who may need someone at the ready to guide them.

BEST ONLINE BROKERAGE FOR BEGINNERS FOR THE PRICE FEES

Ally Invest

  • Ease of Use: No real bells and whistles, but straightforward platform and easy-to-access tools 4/5
  • Fees/Initial Deposit: $4.95 per trade for stocks, ETFs/$4.95 for options plus 65 cents per contract; no minimum deposit required 5/5
  • Research and Tools: Everything necessary for a beginner but not as extensive as it could be 4/5
  • Investment Choices Stocks, ETFs, Options, IRAs, forex, futures 4/5
  • CreditDonkey Score: 4.25/5

Why We Like It
TradeKing (now Ally Invest) offers $4.95 trades, making it one of the affordable broker on the market. It has a user-friendly interface, even though it lacks some of the extensive research offered by other online brokerages. It does have some info specific to new investors, including easy-to-understand educational tools for those curious about forex. And for those who need their hand held, the $20 broker-assisted trade fee is quite attractive by comparison to other online brokerages.

Ally Invest also boasts of a Trader Network — sort of like a Facebook for investors — where you can ask questions and get advice or guidance from fellow investors who might offer more practical real-world insight than you can get from reading an article or watching a video. But remember, many of these folks you'll connect with aren't professionals, so proceed with caution and follow up with your own research.

The Downsides
If you decide your IRA isn't working for you for any reason, you'll be charged $50 to transfer the money out and/or $50 to close the account.

Who It Works Best For
Beginners who want to save every possible dime on their trades but want a welcoming platform geared towards their needs.

BEST BROKERAGE FOR BEGINNERS FOR EDUCATIONAL MATERIALS

OptionsXpress

  • Ease of Use: Well-designed platform, including Idea Hub for options trading and All-In-One-Ticket where you can see all your investments on a single page 4/5
  • Fees/Initial Deposit: $4.95 plus $0.65/contract per options trade; $4.95 per trade on stocks and ETFs; $3.50 per futures contract; no minimum deposit required to open account 4/5
  • Research and Tools: Vast library of educational and how-to interactive videos and instructional tools; real-time quotes and charting 5/5
  • Investment Choices: Variety of products, including options, stocks, ETFs, bonds, mutual funds, futures, and forex 5/5
  • CreditDonkey Score: 4.5/5

Don't let the name fool you — while OptionsXpress is one of the best brokerages around for options trading, it's still a great brokerage with many investment opportunities. Its website is geared towards both novices and beginners, with a colorful, inviting interface.

Why We Like It
One of the most appealing aspects of OptionsXpress for beginning traders is $25,000 in virtual cash to try your hand at investing on its platform. That is an invaluable practical device that allows you to take somebody's fake money and try to fake-profit from it. Novice investors often need help with their trades, and OptionsXpress does not charge for broker-assisted trades. This is a real asset for beginners who have trouble executing their trades or who need some additional guidance. The video tutorials are very helpful and spoken in a language that won't intimidate novices.

Who It Works Best For
New traders and the YouTube generation who enjoy video instruction. People who want to focus on options trading.

OTHER BROKERAGES TO CONSIDER

Honorable mentions go to Scottrade, with its $6.95 fee per trade. It's not the most welcoming platform for beginners, but it can save you money in the long run (see promotion on how to get free trades on Scottrade).

If you prefer a trusted name that might be more familiar to you, TD Ameritrade is also a good alternative for novices. It does offer three different platforms and virtual practice money to trade with, and gives you access to free specialists to help guide you with your investment needs.

Cynthia Cohen is a retail analyst at CreditDonkey, a stock broker comparison and financial education website. Write to Cynthia Cohen at cynthia@creditdonkey.com. Our data-driven analysis has been recognized by major news outlets across the country and has helped young adults make savvy financial and lifestyle decisions. (read more)

Disclaimer: Opinions expressed here are those of the author's alone. Please support CreditDonkey on our mission to help you make savvy financial decisions. Our free online service is made possible through financial relationships with some of the products and services mentioned on this site. We may receive compensation if you shop through links in our content.

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