Updated January 26, 2015

How to Choose an Online Stock Broker

You Want to Invest Your Money But You Have No Idea Where to Begin. Here’s the Answer.
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If you have a fair amount of savings and you're tired of watching your hard-earned cash earn less than 1% interest in a standard bank account, it's time to consider investing.

But where to begin? The details depend on where you are in your life. Your investment strategy will be much different if, say, you’re a college student with very little cash versus a middle-aged business owner with a pile of bucks to invest. Another factor is how much risk you want to take on. Some people only want to invest with minimal risk for the long-term. Others might want to toss some cash into a stock or two but not trade on a regular basis. Still other people might seek out higher returns and larger risks, and find that trading frequently is the path they want to take.

Online brokerages give investors of all types an outlet for investing on their own terms. These tools are much easier than trying to find a real life person in your area who can do the investing for you — and charge you for the luxury. The downside with this power to make your own investments is you can easily make mistakes. That’s why Miranda Marquit emphasizes that "ultimately, you need to decide which combination of factors is most important for you when choosing an online broker."

To help you decide, CreditDonkey has collected the top factors you should consider when choosing an online broker: cost of trades, variety of investment products, inactivity fees, broker-assisted trades, and tools and research available. Keep in mind that there's no rule that says you can only be loyal to one brokerage — depending on your strategy, you might find having an account with multiple brokers serves your investment needs best.

Consider the Cost

Of course, your investment goal is to make money, not spend it. While you have many other factors to consider, a good place to start is to see how much each broker will charge you to use it. Here’s a sample of stock trade fees for some of the more popular brokerages:

Per Trade Fees for Stocks:

So, every time you make a move, you’ll get hit with that charge. This can add up if you think you’ll be using your new broker pretty often. Another cost issue to consider is how much you’re going to have to put down to open an account. The answer to that question is easier at some brokers than others. Scottrade and E-Trade, for instance, both require a minimum to open accounts ($2,500 for Scottrade and $500 for ETrade). While Ally Invest does not require a minimum balance and charges only $4.95 per trade.

Brokerages that require no minimum deposit:

Another area where online brokerages will charge you a fee is with broker-assisted trades — any time you need help or have a question. If you're a seasoned trader, you might not have the same issues and this might rarely apply to you. However, if you're a beginner, you might very well need the assistance now and again. Here's a sampling of what those trades might cost amongst the popular brokerages — and remember, the charge is in addition to the trade fee:

Broker-assisted trade charges:

Get a Feel for the Platform’s Ease-of-Use

You don't want your investing experience to be cumbersome and exhausting. If you want to make a trade, you want to do so with a minimal amount of mouse clicks and not have to drudge through dozens of drop-down menus to find what you need. While some of the less costly brokerages might save you money, you might have to make up for it in time as they don't offer all the bells and whistles as some of other platforms. CreditDonkey has found the following platforms are well-designed with easy-to-access tools and trades made easy :

Brokerages with low learning-curve platforms:

Evaluate the Range of Products

Okay, so you've been doing pretty well with your mutual funds and utility stocks, but now you want to venture into something a bit more risky. What about options and futures? You've done some research and you're ready to dive in. But then you realize, your so-called full-service brokerage doesn't offer futures trading. What to do? As stated above, just because you're with one brokerage doesn't mean you can't open an account with another. You may need to branch out to another broker.

Full-service Brokerages including Options and Futures Trading:

  • E-Trade: $6.95 plus 75 cents per options contract/$1.50 futures contract
  • TD Ameritrade: $6.95 plus 75 cents per options contract/$2.25 futures contract + fees
  • TradeStation: $4.99 plus 20 cents per options contract/$.25 - $1.20 futures contract, per side

Look into Mutual Funds

If you're going to trade this very popular, low-risk offering, you want a brokerage that has a large variety of fund families to choose from, in addition to low fees. Cost-wise, mutual funds are broken down into load and no-load funds. For load funds, you are charged a fee by the mutual fund family; on no-load funds, the fund family won't charge you anything, but you still might be subject to a brokerage commission fee. On no-load, no transaction fee (NTF) funds, you'll pay nothing to buy or sell. The fees for each mutual fund will be spelled out for you via each brokerage's respective websites:

Breakdown of popular mutual fund brokerages:

  • E-trade: 8,000 + funds; 1,300 no-load, no transaction fee; $19.99 fee for load funds
  • Scottrade: 14,000 + funds; $0 for no-load, no transaction fee funds, $17 sell fee for load funds
  • TD Ameritrade: 13,000 + funds; a hefty $49.99 per no-load funds, but no commission fee on load funds
  • OptionsXpress: 5,400 no-load funds; $9.95 load fund fee
  • Ally Invest: $9.95 no-load fund fee; no commission fees on load funds

Always See If You Can Get an IRA

It's hard to go wrong when you invest in an IRA, as you're saving for your future while also getting tax breaks. The two most popular are Traditional and the Roth IRA, and most online brokerages allow you to open and maintain such accounts with no annual fee.

Will You Want to Use Your Broker for Banking Too?

Why keep your money in several institutions when you can bank and invest at the same place? Some people will find this option appealing, given the incentives offered by some brokerages to open an account, as well as free checking and reimbursed ATM fees. However, if you already are using a bank you like, Kirsten Grind of the Wall Street Journal suggests that "the best approach for people opening a new account might be to keep their existing account as well, so that their automated bill pay and other services aren't interrupted. That way, if the brokerage's sweet deal goes away, they can simply roll the money back into their old bank account."

Brokerages that offer banking services:

Last But Not Least, Take Customer Service into Account

If you're in a bind and need assistance, the last thing you want is having to pull teeth to get an answer. The following brokerages have been rated at 4.7 or above (out of 5) for customer service by Theresa Carey of Barron's:

BOTTOM LINE

CreditDonkey put this list together to get you started. You may want to pare down your options to the three brokers who stand out for you and look at them more closely. Research is a big part of investing, and its importance can’t be overstated. Starting with what broker to choose, to researching which stocks and investment tools to place your money, and then keeping your eye on current market conditions, it’s a continuing job for any successful investor.

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 investors 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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