Choosing An Online Stock Broker
Introduction
Choosing an online stock broker can be difficult and overwhelming at times. People new to stock trading and investing have many choices and options to consider. Finding the right online broker to meet your needs or requirements can be very rewarding and beneficial, for your portfolio and your peace of mind.
Here are some basic things you will need to consider when you look at difference online brokers. If you are not sure what these options and features are, you can speak to a representative of an online broker firm, or you can leave a comment and we’ll do our best to answer your questions.
Commissions
All brokers charge commissions fees. Commissions fees are the cost to buy and sell stocks. You are charged a commission fee twice: once when you buy a stock, and again when you sell that stock.
I believe all brokers charge higher commissions when you phone in orders and speak to a human being. Keep this in mind as these commissions are for orders placed online only.
- Scottrade: $7 per trade
- TD Ameritrade: $9.99 per trade
- Interactive Brokers: varies, minimum $2
- E*Trade: $19.99 per trade
Minimum Initial Deposit
The minimum initial deposit for online stock brokers ranges from $500 to over $10,000. For those with less initial trading capital, lower minimum deposits are generally the deciding factor.
If your account balance is less than this minimum, your broker may charge you a fee every month or every quarter. These fees usuall range between $10 to $20 per month or per quarter, but can be higher. Read the fine print if you plan on depositing the absolute minimum capital in to your account.
- Scottrade: $500 minimum deposit
- TD Ameritrade: $2000 minimum deposit
- Interactive Brokers: $2000 minimum deposit
- E*Trade: $1000 minimum deposit
Features
All online brokers have a set of features and tools included with your online trading account. The default set of tools include streaming charts and streaming data, which is usually in the form of an application called a streamer. Your streamer allows you to see the latest real time prices of stocks in your watch list or portfolio. Some streamers simplify the process to buy and sell stocks so you will not have to load up a separate web page to place your orders.
Most brokers also have additional features which are not included in the basic trading account. These additional features have additional costs. Level 2 data and real time streaming news generally fall in to this category and have additional monthly fees.
Popular features offered by online brokers include:
- Streaming Charts
- Streaming Data
- Analysis Tools
- Streaming Real Time News (may cost additional fee)
- Level 2 Data (may cost additional fee)
Local Offices
Some online brokers have local branch offices some U.S. cities. Some traders and investors may want to sit down and talk to their local broker representatives. In this case, choosing an online broker with a branch office close to your home may be the deciding factor for you.
Scottrade has very many branch offices all across the US. TD Ameritrade also has branch offices in some cities and the number appears to be growing. I do not believe E*Trade has any branch offices.
My broker, TD Ameritrade, has an office in my city, but I have never visited them. A local branch office was not a deciding factor in my choice of an online broker.
Popular Online Stock Brokers
Here are the most popular and respected online stock brokers. This list may be incomplete or your favorite broker may not be included. These are the brokers I am either personally familiar with or have heard good things about from my trading and investing friends.
- TD Ameritrade - my online stock broker
- Scottrade - my old online broker
- E*Trade
- Interactive Brokers
June 27th, 2006 at 9:14 am
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June 27th, 2006 at 2:30 pm
So what made you switch to ameritade?
June 28th, 2006 at 8:37 am
Good articles. Why TD Ameritrade over Scottrade? What have you heard about Interactive Brokers?
June 28th, 2006 at 1:26 pm
Hi Shawn,
The primary reason I switched from Scottrade to Ameritrade was that Scottrade charged higher commissions for limit orders. Limit orders are where you specify the price you wish to buy and sell a stock at. Scottrade had $7 market orders, in which you get the current going market price. Scottrades limit order commissions were something like $12.50 + 1/2%, per order, which was cheaper than Ameritrade’s flat $10.99 fee.
Earlier this year or late last year Scottrade changed their commissions fees to include limit orders in the $7 fee. I have actually considered re-opening my Scottrade account as $7 is a pretty low price. If I did re-open my Scottrade account, I would still keep my TD Ameritrade and just have both.. perhaps using one for trading and one for longer term investing.
I also was not too happy with Scottrade’s streamer app. It was very weak in my opinion. Ameritrade’s was a lot nicer to look at and use in terms of simplifying order management and viewing information on stocks. I had Scottrade years ago and I hope they have since upgraded their streamer and client website, making them more user friendly and “prettier”.
Best Regards,
Nick
June 28th, 2006 at 1:29 pm
Hi Bob,
Please see my above comment regarding Scottrade vs. Ameritrade.
Regarding Interactive Brokers, I have heard very good things about them. I like they way they do commissions and I really like API access for programmers to interface directly with their system. As a programmer, I think their API is something I would take full advantage of.
Once I have more capital available, I plan on opening an Interactive Brokers trading account. I will not get rid of my TD Ameritrade, account, though. I have Ameritrade Apex which gives me free extras, like Level 2 data, streaming real time news, and other extras.
Hope this helps!
Best Regards,
Nick
June 28th, 2006 at 11:37 pm
I am an active daytrader and I am using scottrade’s elite platform. I don’t have many complaints about scottrade. I’ve used Ameritrade before (and still have an account with them). For trading sizes at 1000 shares or more at a time, it’s cheaper than the per-share commissions of, say TradeStation and the like. There are people that say they cheat you out of a cent on orders by outsourcing their order flow, and all I can say is sometimes it does seem like that’s happening, but other times my fills are instantaneous.
The biggest downside to scottrade right now, in my opinion, is you have very little flexibility for trading options. I don’t expect someone like scottrade to allow me to write naked options, but they won’t even allow vertical or calendar spreads, for instance.
The second biggest complaint I have, is that you can’t tell how many shares (if any) are available for shorting without just trying to make the trade. That means wasting a fair amount of time waiting for a great setup, only to find out that your order won’t go through. In general, though, it is rare when I can’t short a stock. They have pretty good short inventory.
At some point, I will get the energy to switch to Tradestation or CyberTrader, but scottrade is good enough that it hasn’t overcome my laziness to switch. I do this for a living, so I can’t think of any casual traders that wouldn’t be satisfied with scottrade.
June 29th, 2006 at 8:18 am
I want to know why you switched
July 3rd, 2006 at 2:39 pm
So, it seems you need to be rich to even think about getting into stock. That’s rather disapointing.
July 17th, 2006 at 8:00 am
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July 17th, 2006 at 5:53 pm
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July 31st, 2006 at 5:26 pm
[…] I have gathered information on each online broker, such as commissions fees, margin rates, minimum initial deposits, special offers, and any other useful information I could find. I’ve also created a page for each broker where you can read other peoples comments and rate your broker from 1 to 5 stars. If you rate your broker, I would appreciate if you leave a comment for others, for example why you like or dislike your broker or any advantages or disadvantages you’ve experienced. People’s comments and ratings are a good way to weed out a great broker from a poor broker. Browse the list of online brokers: List of Online Stock Brokers Need help choosing a broker? Read my article: Choosing An Online Stock Broker. […]
August 15th, 2006 at 3:10 am
[…] Choosing an online stock broker can be difficult and overwhelming at times. Finding the right online broker to meet your needs or requirements can be very rewarding and beneficial, for your portfolio and your peace of mind. Here are some basic things you will need to consider when you look at difference online brokers.read more | digg story […]
October 24th, 2006 at 2:13 am
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October 30th, 2006 at 8:11 am
[…] Choosing an online stock broker can be difficult and overwhelming at times. Finding the right online broker to meet your needs or requirements can be very rewarding and beneficial, for your portfolio and your peace of mind. Here are some basic things you will need to consider when you look at difference online brokers.read more | digg story […]
January 25th, 2007 at 2:37 pm
You can actually try to call Ameritrade and tell them to match Scottrade’s $7 commissions, especially if you threaten to close your account. This worked for me and I now pay $7 commissions.
March 27th, 2007 at 1:53 pm
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March 30th, 2007 at 7:21 am
Hello there,
Very nice article. I’d like to share my own experience.
I am a customer of Interactive Brokers, and I can say they are the best in the market for the small trader. This is because of their price policy based in a per-share basis rather than a flat price per trade.
I see a little mistake in the information on IB: Their minimum is US$ 1, not US$2. For trading options, they are also the best: They charge a 0 base plus 0.75 per contract (minimum US$1). Great again for the small trader.
When I started with IB, the minimum to open an account was US$2,000. Now it is US$5,000. Some people find IB unfriendly, and with poor customer service. I don’t, indeed, they have always answered my inquiries promptly and accurately. However, their Trader Workstation requires some time to master it. But they are always improving it — they even have a page to allow you to propose new features and even vote on others’ proposals.
A new kid on the block that worth to look is Zecco.com.
They charge you zero for trading stock, and for options is US$3 base + US$0.6 per contract. If you don’t plan to trade options, Zecco is very interesting. I haven’t tried them yet, thou.
I actually performed a little research and posted it in my web page.
http://www.thesmalltrader.com/Choosing_a_Broker.html
Good trading to all!
August 5th, 2007 at 9:38 am
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August 20th, 2007 at 6:46 pm
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August 22nd, 2007 at 1:50 am
Sogoinvest is offering stocks at $3. Best online stock broker i have found.
September 10th, 2007 at 10:55 am
If you are looking for occasional low cost trades, either MBT or IB are OK
- I’d select IB because they are well capitalized & offer extras, after hours trading, in-house clearing and are market makers (Timber Hill) which can aid in execution at best price.
As always, your experience a broker will vary & execution price should only be one factor. As an example, I had a Scottrade account and experienced a large loss when they failed to execute the limit order properly then held the stock in a frozen state for months. THIS DISASTER was met with a non-responsive customer service department .
I WOULD NEVER RECOMMEND SCOTTRADE TO ANYONE !
September 19th, 2007 at 3:44 pm
I have been with Scottrade for abou 10 years now. I have never had a problem with them. They can be a little limited when it comes to derivatives such as options, but I like the ability to also go to a brick and mortar site if I need to.