Online Stock Brokers: Compare and Review
You've done the research, you know what companies you want to invest in, and you know what kind of investment strategy you’re capable of. Now the question is: how to make it happen? Which stockbroker is right for you? Should you immediately sign up with the one with the lowest fee or is there something else you should consider? We’ll help you compare and decide.
How to Choose a Stock Broker
Are you tired of earning just pennies on your savings every month? Are you looking for another way to build wealth? Do you want to invest in the stock market but don't know where to start?
Join the club. There are a lot of beginner investors out there who want a lot more out of their hard-earned cash than the measly 0.25% interest rate they’re likely to find with their bank account. But to invest wisely in the stock market, they can’t do it alone. They need a broker.
Finding the right one is similar to picking a stock or mutual fund — you wouldn’t pull the trigger without doing your homework first. If you're ready to start comparing brokers, CreditDonkey's got the skinny on how to choose one.
CreditDonkey Top Rated Online Brokers
Below you'll find our complete list of the top online stock brokers. You can skip below to compare online brokers for yourself and you don’t need to give up any personal information to do it.
Not ready to compare just yet? Read on to see what you’ll need to think about before you open a stock brokerage account.
Why You Need a Stock Brokerage Account
Stashing your money in a savings account is a good way to keep it safe, but you're not going to get rich that way. At best, you might be able to scrape up just 0.25% interest at a brick-and-mortar bank. You might get an APY as high as 1% at an online bank, but that's still peanuts compared to what you could get by investing wisely in the stock market.
Dipping your toes into the market for the first time can be a little scary (there are definitely risks involved along with the potential for rewards), and that's why it's so important to have the right broker in your corner. You need one that can help you move forward, not one that will force you backward under a pile of fees and hard-to-navigate information.
Is Investing in Stocks Worth It? 3 Reasons to Invest in Stocks
If you're on the fence about whether to play the market or not, take a look at what you stand to gain. There are three specific advantages to investing in stocks:
Weighing Rewards vs. Risk
No discussion of investing in stocks would be complete with touching on the risks that go along with them. It's more fun to focus on the returns, but you can't afford to overlook the potential dangers.
The bottom line?
There are a lot of unknowns involved when you're investing in stocks and it's not right for everyone.
If the thought of losing money or having to recover after a market crash leaves you feeling queasy, you might be better off playing it safe with bonds or certificates of deposit instead. These investments generally carry less risk, but there is a trade-off since they don't generate the same kind of returns as stocks.
On the other hand, if you're at ease with the idea of managing your own portfolio and you have a relatively high risk tolerance, then an online stock brokerage account may be the natural next step for you.
How Much Does It Cost? Understanding Brokerage Fees
Any time you buy or sell a stock, you're going to pay a commission fee. These fees are regulated by the Securities and Exchange Commission, but it's up to individual brokers to decide how much to charge. In general, the fee will depend on the kind of service the broker is providing. Lower fees typically mean fewer services.
Aside from the commission or trade fee, there are several other costs to keep in mind. If you're buying a mutual fund, for example, there's usually an upfront sales charge in addition to the trade fee. Your broker may also charge an annual account maintenance fee, inactivity fees if you go a certain amount of time without making a trade, minimum balance fees and fees for transferring assets between accounts.
To qualify, you must fund your account with $5,000 or more within 30 days of account opening. $5,000 minimum funds must remain in the account (minus any trading losses) for a minimum of 6 months.
Commission credits are good for 60 days from award date. Commission credits cover equity, ETF and option orders (including the per contract commission). Exercise and assignment fees still apply. You will not receive cash compensation for any unused commission credits.
For new customers only.
While fees should be one of your top considerations, don't let it be the only one. We'll explain below.
Full-Service vs. Discount Brokers
Not all brokers are created equally. One of the things you need to be clear on before you choose one is what kind you actually need. They come in two basic flavors: full-service and discount, and there are some key differences between the two.
A full-service broker tends to offer more in terms of the kinds of financial products you can invest in and the level of advice they provide. For example, you may be able to buy stocks and an insurance policy through a full-service broker or get expert insight on a specific investment. Full-service brokers are typically paid on a percentage basis, which means the more you trade, the more they make, and their overall fees are generally higher.
Discount brokers, on the other hand, come with a much smaller price tag because they lack all the extra bells and whistles. You'll still be able to make trades but you're not going to get the same level of research or advice that you would with a full-service broker. Discount brokerages charge a flat trading fee, and they're the much less expensive option of the two.
What to Consider When Picking a Broker
Now that you know what categories brokers fall into, the next step is comparing the details.
It's easy to make a mistake when choosing an online stock broker. A wrong click here and you'll end up blowing your life savings.
You have a few factors you need to consider carefully when choosing a broker:
Tip: You can't swim without getting in the water, but when you're talking about your hard earned money, we know it can be terrifying to dip that first toe in. Brokers like Scottrade and OptionsHouse offer virtual trading platforms where you can make mock trades using virtual cash.
Identify Your Investing Style
The stock broker you choose should reflect your short- and long-term goals. Figuring out which kind of investor you are can guide you towards the appropriate brokerage.
Choosing the right stock broker is not a decision you should make lightly. Weigh the services and benefits against the fees involved and the likelihood you’ll make full use of what the broker is offering. Map out your goals and figure out whether the broker you’re eyeing can help you get there. Do you understand their terms and offerings? Will they make investing easier or more difficult for you? Will they help you stay informed to make the right decisions going forward, and can you easily track the decisions you’ve made in the past? Can you find what you need on their website, or do you get lost?
A good broker should provide the tools you need and can use to make smart investing decisions at a reasonable cost.
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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