Review of best online stock brokers for trading stocks

Published 12/27/07 (Modified 3/2/12)
By MoneyBlueBook

Updated list of 10 best discount brokers

So, you are finally sold on the idea of signing up for an investment brokerage account so you can start making money by investing in the stock market. Or, perhaps you are already an experienced trader but at times still wonder what other brokerage options are out there? These days there are a lot of options out there but it can be sort of confusing trying to find the right online broker. There are many choices available, from full service premium brokerages to deep discount online brokers. Relying on authoritative financial and investment sites for guidance and opinion reviews isn't always definitive either since they occasionally have differing opinions. The best way to choose the best and right broker to handle your investments is to do a combination - by sticking with the popular ones that have been around for some time and have been sufficiently subjected to adequate scrutiny by the investing community, as well as go with the brokerages that have consistently appeared at the top of reputable rankings and researched reviews.

Know Thyself To Better Determine Brokerage Fit

Factors to consider when choosing the right online broker include the type of investment vehicle you intend to trade (stocks, bonds, mutual funds, indexes, options), the amount of your investment, the type and amount of research material you want, customer service, website design and layout, and trading reliability. It's important to know what type of investor you intend to be. Do you plan on being an active trader with numerous trades per week, or do you plan on being an index, mutual fund type investor who prefers to leave and then forget it. These things matter because many brokerages charge fees and commissions that differ depending on how much you invest and how frequently you trade.

Choosing Discount Brokers Over Full Service Brokerages

I am a hands on investor so I prefer to do things myself. This is not to say I want to handle every single minute detail, but I personally don't need the services of an expensive account adviser for investment decisions. That's why I prefer to go with more affordable online discount brokers over their more expensive full service cousins.

Full service brokers offer a much broader variety of financial products and provide a much wider array of investment advice and research than do discount brokers, but then they charge much higher fees for their services. They justify the much higher commission rates by offering a lot of investment advice and by providing active recommendations. However, keep in mind the advice they provide are usually just educated guesses. Frequently, much of the investment advice and research material can be found elsewhere for free and the educated guesses they provide doesn't always lead to the best investment decisions since no one can truly predict or time the market. It's primarily sales commission-based so they frequently have an incentive to solicit business and encourage active trading, which can occasionally cause suspect and even conflict of interest investment choices. Because of the excess premium you must pay for full service firms, I recommend sticking with discount brokers.

Due to continual competition, many discount brokers now also offer a decent wealth of financial research and investment material at your online fingertips. There are less frills than premium brokers like Merrill Lynch, Morgan Stanley, or Wells Fargo, but I think for most reasonably educated investors, the discount path is the way to go. The considerably lower fees will enable you to lose less money from unnecessary commissions and help you maximize your money.

There are many brokerage firms out there from expensive fancy pants full service brokerage firms to more affordable premium discount and deep discount brokers. Since I advocate sticking with much cheaper do-it-yourself online discount companies, I'm listing the best ones in my opinion. However, all of these discount broker choices would certainly benefit more experienced, seasoned investors as well. I'm also recommending a few popular more-premium brokers such as Fidelity and Vanguard that many like for the exceptional low cost funds they offer as part of their own transaction free network of mutual funds.

The Top 10 Best Online Discount Broker (Listed In No Particular Order)

1. Zecco - Zecco is a popular online broker choice among investors who want to enjoy free trades and not have to pay a fee for each equity transaction. Currently the commission cost is free for the first 10 trades per month if you maintain a minimum of at least $25,000 in total account equity (total balance of all cash and stock value). If you are unable to maintain the balance requirement, then each trade will require a $4.50 trading fee. Even with the fee, Zecco offers one of the lowest trading fees among all popular discount brokers. Also, there are no hidden inactivity fees, which is great for those who don't intend to trade too often. For more information, check out my review of Zecco, and my account trading experience with them.

2. TradeKing - TradeKing offers exceptionally low $4.95 equity trades, with no inactivity or maintenance fee, which is very good. The trading interface is pretty average but decent, and the online customer service chat feature is useful, although many brokers are starting to provide this function as well. For a more detailed breakdown of all that TradeKing has to offer in terms of combining low trading costs with premium online brokerage features, please read my TradeKing broker review.

3. E-trade - Bonus Offer: E-trade is currently offering free trades for 60 days. This special Etrade bonus offer is also available for new new IRA and Roth IRA accounts as well. If you haven't yet opened a retirement Roth IRA, this may be your best opportunity. Etrade has been around for some time and is quite popular due to the wealth of tools and research information the company provides to account holders. Etrade is one of the few full service discount brokers out there that also offers an integrated online bank as well - complete with Etrade bank savings and Etrade checking privileges. Its stock commission rate is tiered at a standard rate of $12.99 but drops the more frequently you trade and the higher the value of your accounts. Customer service has occasionally been spotty, but it's rapidly improving. If you're looking for an all-in-one broker/bank, Etrade's your best bet.

4. Scottrade - Scottrade offers actual brick and mortar branches throughout the country that some investors find useful. I personally don't find it necessary but many appreciate the convenience of having actual branches nearby that they can visit, a benefit not offered by many other online brokers. Its biggest downsides include providing much less research material for account holders and offering a much lower interest rate for its cash accounts than its competitors. However, there are many pluses as the company offers very good customer service and provides a wide selection of No Transaction Fee (NTF) funds. Its commission fees for equity and limit trades are exceptionally low at only $7 with no share limit, and there are no inactivity fees.

5. ShareBuilder / ING Direct - (Note: ShareBuilder is offering a free $50 bonus when you open a new account). ShareBuilder was recently acquired by ING Direct. This broker provides good tutorials for beginners and is a great choice for those new to investing. I suggest sticking with the Standard subscription account as it provides more features, but those who don't plan on trading too often may prefer the Basic account, which doesn't charge a fee at all. Sharebuilder also offers the very useful option of automatic investments as well as dollar based investing, which allows you to invest in a particular dollar amount you choose rather than by a particular number of shares. The dollar based investing feature is very handy for trading stocks with high individual share prices like Berkshire Hathaway A Shares (BRK-A), which was last trading at $138,500 per share!

6. Fidelity - I personally use Fidelity Investment as my primary individual stock and mutual fund account. Not only is the company's customer service top notch, I think its online trading website is clean and easy to use. I invest in many of Fidelity's high performing mutual funds and by having a brokerage account through Fidelity directly, I don't have to worry about transaction fees when I trade Fidelity funds. Standard stock trades are $19.95, but due to its tiered system, the fees are much lower depending on the total value of your assets. I highly recommend this brokerage firm.

7. Vanguard - Vanguard is more expensive in terms of fees as each online trade costs $25 or $0.025 per share (whichever is greater). However, because Vanguard's exceptionally low expense ratio mutual funds have performed so well, this company is great for people like me who want to invest in high performing diversified Vanguard funds without having to pay hefty fees through another broker.

8. Charles Schwab - Charles Schwab used to be a more expensive premium broker, but it seems to be matching itself up with its competition better these days by lowering and simplifying its commission tiers. The company offers an impressive wealth of research related information and fees are currently $8.95 per trade, with extra charges past 1000 shares. Schwab offers other financial features such as personal banking and credit cards, and its customer service has been decent and dependable.

9. TD Ameritrade - Ameritrade bought out Datek and merged with TD Waterhouse to finally become TD Ameritrade over the years. Among the features offered, one stands out - a predicable and single priced commission fee - a straightforward $9.99 for each market and limit trade. TD Ameritrade is not the best for mutual fund investing, but it's very good for individual stock trading. The stock streamer program is a nice feature, but I've found it to be occasionally buggy and not always working properly.

For More Online Broker Rankings and Review, Please Check Out:

1. Smart Money's 2009 List Of The Best Stock Brokers
   
2. Barron's
3. J.D. Power &, Associates
4. Kiplinger
5. USA Today