The quality of brokerage account services has really come a long way over the past 20 years, even while costs have shrunk to almost nothing. If you’re paying more than about $10 per trade… frankly, you’re doing it wrong.
Whether your beat is day trading or long-term stock trading, there has never been a better time to be an investor. Today, your biggest challenge is simply choosing where to open your brokerage account. There are so many quality brokers, it can be a little overwhelming.
Let’s take a look at some of the major players to break down the good, the bad, and the ugly.
|Broker||Cost per trade||Minimum deposit||DRIP||Access to foreign markets||Notes|
|Charles Schwab||$8.95||$1,000||Yes||ADRs and Canadian stocks||Solid all-around broker and a good choice for casual traders|
|E*Trade||$9.99||$500||Yes||Extensive||Reasonable prices and good international access|
|Fidelity||$7.95||$2,500||Yes||Extensive||A worthy competitior with an elegant and easy to use website|
|Interactive Brokers||$0.005 per share, $1 minimum||$10,000||No||Extensive||Best for professional traders and managers. Lowest margin rates and best inventory of stocks for shorting|
|Scottrade||$7.00||$2,500||Yes||ADRs and Canadian stocks||Solid option for casual traders and professionals alike|
|TD Ameritrade||$9.99||0||Yes||ADRs||Very solid all-around broker; added sophistication and social sharing with thinkorswim|
|TradeKing||$4.95||$0||Yes||ADRs||Sophisticated setup, best overall mobile experience|
|TradeStation||$4.99||$5,000||No||ADRs||Cost prohibitive $99.99 platform fee on accounts smaller than $100,000|
I’ll start with Charles Schwab, the granddaddy of discount brokers. Four decades ago, Schwab effectively brought investing to the masses, making it easy and affordable for regular people to open a brokerage account. And today, Schwab remains an excellent option for ETF, bond and stock trading and mutual funds.
Charles Schwab is a good choice for a beginning investor or for an investor that trades relatively infrequently. Customer service is solid, and Schwab’s website interface is easy to navigate. The cost per trade is a modest $8.95, and the minimum to open a brokerage account is only $1,000. Schwab offers dividend reinvestment, which is a major plus for long-term investors.
If you are a fairly active trader
The only real downside to Schwab is that its international offerings are a little limited. You have access to ADRs and Canadian stocks, but not much else overseas.
E*Trade was an early pioneer in online stock trading, and it remains a very strong competitor today. Commissions are very reasonable at $9.99 per trade, and the minimum to open a brokerage account is only $500. (If you have less than $500 to invest, you probably have no business opening a brokerage account.)
E*Trade’s ease of use make it a very solid option for a beginning investor, but its range of products make it a viable choice for an active trader as well. E*Trade offers a broad selection of mutual funds and ETF. bond, and stock trading. Among all the brokers reviewed here, E*Trade also has some of the best exposure to international markets if your stock trading takes you overseas.
And finally, for the buy-and-hold investors out there, E*Trade offers automatic dividend reinvestment.
Fidelity has really come a long way in recent years. Not that long ago, Fidelity was almost exclusively a mutual fund shop. It’s not a place you would have normally gone to open a brokerage account. But today, Fidelity offers a very competitive product at a very reasonable price. Fidelity charges a very modest $7.95 per trade and has a $2,500 minimum deposit to open. Fidelity also offers extensive access to foreign markets and automatic dividend reinvestment for long-term investors.
For a beginning investor, Fidelity is a fine option, as its interface is easy to use. But for an experienced market veteran, Fidelity also has a robust enough platform to get the job done well.
I can’t tell you which broker is the “best” because what works for one investor might not work for another. But I can definitely tell you which broker is best for me, and that would be Interactive Brokers.
If you’re into day trading or active stock trading, Interactive Brokers is almost always going to be the cheapest option for you. Stock trades are $0.005 per share with a minimum commission of $1 per trade. For a hypothetical 6 stock trades and two options trades per month, you’d be paying just $20 by Barron’s estimates.
If you short stocks or trade on margin regularly, then Interactive Brokers is the only obvious choice. Interactive Brokers is in a class of its own in terms of inventory of stocks available to short, and its margin rates are the lowest by far. Margin rates can get as low as 0.5%, though most investors will likely pay closer to 1.7%. As a frame of reference, margin rates at most of the other brokers are well over 7%.
But Interactive Brokers is not just the cheapest option. It’s also one of the best for experienced traders. You have unrivaled access to foreign markets as well as futures and foreign exchange. And Interactive Brokers also gives you access to complex order types that most brokers do not offer (market on close, market on open, pegged to midpoint, etc.)
Is there anything not to like?
Interactive Brokers’ Trader Workstation is designed for a professional investors, so it can be difficult for a beginner investor. I would go so far as to say that a beginner investor could get themselves into trouble with it.
Interactive Brokers also has a higher minimum deposit than most at $10,000, and it doesn’t offer dividend reinvestment. And if you don’t do at least $10 per month in trading, you’re subject to a $10 per month maintenance fee (this is waived on accounts greater than $100,000.)
So, if you’re an experienced, active trader, Interactive Brokers is a fine choice for your brokerage account. If you’re a novice or an infrequent trader that focuses more on dividend reinvestment, then it might not be best for you.
I might always be a little partial to Scottrade because that is where I opened my first brokerage account. It remains a very decent competitor today, with good customer service, and easy to use interface, and very modest stock trading commissions at $7 per trade.
The minimum deposit, at $2,500, is also very reasonable, and Scottrade has an interesting twist on dividend reinvestment. Rather than reinvest your dividends into the company that pays them, you can opt to automatically reinvest them elsewhere. For example, you can automatically reinvest your Microsoft (MSFT) dividend in Apple (AAPL), or vice versa.
Scottrade has also beefed up its trading tools for day traders and more active traders with its ScottradeELITE program. Its exposure to foreign markets is limited to ADRs and Canadian stocks, but overall, Scottrade is a very decent broker for beginners and pros alike.
TD Ameritrade is a solid all-around option for your brokerage account. In addition to offering reasonable commissions at $9.99 per trade, TD Ameritrade has a large branch network, good customer service, and a website that is extremely easy to navigate. All of this makes TD Ameritrade a good option for a beginning investor.
But TD Ameritrade also has quite a few tools that make it appealing to advanced stock traders as well. Its thinkorswim platform, which can be thought of as sort of a collaborative social media for investing, is popular with do-it-yourselfers and professionals alike.
An underappreciated selling point of TD Ameritrade is that they are a little more accommodating than most discount brokers when it comes to housings non-traditional assets. If you invest in hedge funds, private REITs or other non-traded investments, TD is more likely than most of the rest to be able to actually hold them.
TradeKing is unique in that they were the first broker to really take a “mobile first” approach to design. Every broker I review here has at least functional smartphone and tablet apps, but in every other case the mobile experience is considered something of an afterthought. Not so with TradeKing. So, if mobile trading is a critical need for you, TradeKing is one you should seriously consider.
TradeKing also competes with TD Ameritrade’s thinkorswim in its social sharing capabilities.
Pricing is very reasonable at $4.95 per trade with no minimum to open an account. International trading is somewhat limited.
TradeStation is a popular option for active stock trading and day trading, and its users tend to be sophisticated investors. As with Interactive Brokers, TradeStation is definitely built with a professional trader in mind. TradeStation’s trading software is arguably even better than that of Interactive Brokers in terms of its customization, capabilities and tools. And TradeStation has the best backtesting tools on the market, hands down. If you want to build a trading system, TradeStation is generally your best option.
Commissions are very reasonable at $4.99 per trade, and investors have access to stocks, options, futures and forex all in a single brokerage account. But TradeStation can get very expensive if you have less than $100,000 in your account. Smaller accounts are subject to a $99.99 per month platform fee to use the trading software.
Access to international markets is also limited to ADRs.
But overall, if you have an account with at least $100,000 and you want a sophisticated trading setup, TradeStation is a very strong competitor.
Disclosures: I currently use Interactive Brokers and TD Ameritrade as my primary custodians.
Charles Sizemore is the principal of Sizemore Capital Management.