If you are looking to invest in stocks, mutual funds, bonds, and other securities, you’ll need a brokerage account to handle your trades. Historically, this required working with a human stockbroker to assist with executing trades. However, the internet has revolutionized the industry, reducing costs and offering a variety of options for investors. Today, there are numerous high-quality online stock brokers and trading platforms available, but the best choice for you will depend on your individual investment style and preferences. Keep reading for our comprehensive guide to selecting an online stock broker.

How to Select the Right Online Stock Broker

Each online stock broker has its own unique structure when it comes to investment options, features, fees, and customer service. Some brokers excel in certain areas depending on your specific needs. Our comprehensive guide to choosing an online stock broker provides a step-by-step approach to help you evaluate your options effectively.

Understand Your Financial Goals and Investment Approach

There are various ways to invest and trade, each suited to different approaches. Some investors prefer a straightforward method, while others seek to leverage every possible advantage to increase profits. Online stock brokers cater to these diverse preferences. Below are some common trading styles and the platforms that are best suited for them.

Investing

Long-term investing involves setting up a portfolio and holding it over time without frequent changes. You might focus on value investing by purchasing undervalued companies or growth investing by selecting companies with strong future potential. Vanguard is a solid choice for mutual fund investments, Schwab excels with exchange-traded funds (ETFs) and is ideal for beginners, while Fidelity stands out for offering comprehensive full-service features for investors.

Active Trading

Active traders dedicate more time to researching and managing their portfolios in pursuit of higher returns. They may engage in day trading, use strategies like scalping and swing trading, and trade complex assets such as forex and futures. Interactive Brokers and Charles Schwab are top choices for active traders due to their robust platforms, extensive investment options, and comprehensive research and features.

Automated Trading

Automated trading involves using a computer program to manage and execute your portfolio, while a hybrid system combines the technology of a robo-advisor with guidance from a human advisor. Wealthfront and Betterment are two top choices for automated trading, offering robust platforms for hands-off investing.

Review Account Features and Functionality

Once you’ve decided on your preferred investment strategy, it’s important to explore the account features of online stock brokers to make an informed decision.

Types of Account

Different types of investment accounts come with varying tax rules and ownership structures. Not all brokers offer every account type, so it’s worth considering this aspect based on your financial goals.

• Brokerage: A brokerage account is the most common type of investment account, typically available at all online stock brokers. Most brokers offer the option to open either an individual or joint brokerage account, allowing you to invest in a variety of securities.
• Custodial: These accounts allow you to invest on behalf of a minor until they reach adulthood, at which point they gain control of the account.
• Retirement: Retirement accounts provide tax benefits for your investments, such as tax-deferred growth, which postpones taxes on your earnings. You can open an individual retirement account (IRA) for personal use. If you’re self-employed, you may also consider retirement options designed for small businesses, like a SIMPLE IRA, SEP IRA, or a self-employed 401(k).
• Trust: These accounts allow you to invest money that is held in a trust fund, managing assets for the benefit of beneficiaries.
• 529 Plan: These accounts are specifically designed to save for college expenses, offering tax breaks to help manage education-related costs.

Platforms

Online stock brokers provide platforms in various formats, including web, desktop, and mobile options. Some brokers offer all three, while others may specialize in one or two. It’s important to consider your preferred method of managing and tracking your investments.

• Web: Web-based platforms are accessed directly through your browser, offering a straightforward and user-friendly way to manage investments online.
• Desktop: Desktop platforms require downloading to your computer and typically provide the most robust features, including advanced tools for research and trading.
• Mobile: Mobile platforms have surged in popularity over the past decade, becoming essential for many investors. They deliver similar features as web-based platforms, making them ideal for those who want to manage their investments on the go.

Asset Classes

What types of investments do you want to include in your portfolio? While most online stock brokers offer a wide range of asset classes, some may specialize in certain types of investments, with others being more niche or less commonly available.

• Bonds: Bonds represent loans made to companies, governments, or organizations, earning you interest until the principal is repaid.
• Stocks: Stocks allow you to purchase a small ownership share in a publicly traded company, giving you a stake in its profits.
• ETFs: Exchange-Traded Funds (ETFs) are professionally managed portfolios that can be bought and sold throughout the trading day, similar to stocks.
• Mutual Funds: Mutual funds also operate like ETFs but are only bought and sold at the end of the trading day.
• Futures: Futures contracts bind investors to agree to buy an asset at a set price by a future date, involving trading of the contracts, not the actual physical assets.
• Options: Options are investment contracts where one investor buys the right to purchase or sell an asset at a predetermined price within a specific time frame.
• Commodities: Commodities involve trading in tangible goods such as metals, energy products, and agricultural items.
• Alternative Investments: These include investments outside traditional stock markets, such as venture capital, hedge funds, real estate, and artwork.
• Cryptocurrency: Cryptocurrencies like Bitcoin and Ethereum are digital, decentralized currencies that have become a new asset class.

Assess Account Fees and Eligibility Requirements

Stock brokers typically charge fees for their services, although these costs have decreased significantly with the rise of online trading. When researching brokers, be sure to consider their fees and account requirements. Additionally, check if the broker uses PFOF or payment for order flow, as some brokers may offer low-cost services but make money by executing your trades. Therefore, the least expensive broker may not be the best choice if you’re employing more advanced strategies that require optimal trade execution terms.

Fees

Online stock brokers have been reducing fees to attract more customers, and you’ll typically find that they no longer charge trade commissions or account fees. However, other fees may still apply.

• Account fees: Some brokers charge a fee just for having an account with them, and this fee may apply if your balance falls below a certain minimum or if you opt for access to more advanced features.
• Margin rates: Margin trading allows you to borrow money from the broker to make trades with the potential for higher returns. Each broker sets its own margin interest rates, which you’ll need to factor in when considering margin trading.
• Commissions: While many brokers no longer charge commissions on trades, some may still charge fees for processing buy and sell orders. Frequent trading can result in these commissions reducing your overall profits.
• Transaction fees: Some brokers charge a flat transaction fee for processing trades rather than a commission based on the size of your trade. Additionally, certain asset types, such as bonds or mutual funds, may come with specific transaction fees. It’s important to review the potential fees for the investments you’re considering.
• Advisory fees: If you’re looking for a broker to set up and manage your portfolio, they will charge advisory fees. Human advisors typically cost more than robo-advisors—around 1% or more of your portfolio annually, compared to around 0.25% for a robo-advisor. Expect to pay higher fees for a full-service broker that offers hands-on assistance with your trades, as opposed to a DIY discount broker.

Account Minimums

Some brokers have minimum balance requirements to open and maintain an account, and if you don’t meet the threshold, you could incur a monthly fee. While account minimums were once more common, many top brokers now allow you to open an account with no minimum or just a few hundred dollars. However, if you opt for a human advisor, the minimum balance requirement could be significantly higher, often in the five- or six-figure range.

Analyze Research Tools and Account Perks

Your online stock broker plays a crucial role in providing the research and trading tools necessary for building a successful portfolio. Some brokers offer more extensive account features than others. Here are a few key amenities to look for when comparing online stock brokers:

Research

Ongoing research is essential to make informed decisions about what to buy and sell for your portfolio. Some brokers provide proprietary research from in-house experts, offering valuations, trends, forecasts, and recommendations to help guide your choices.

Additionally, brokers may grant access to third-party investment research platforms such as Morningstar and Benzinga. If you have a preference for a specific research site, check whether it’s available through your broker.

Screener

Screeners allow you to filter through a wide range of investment options based on specific criteria that align with your investment goals. For example, a stock screener might help you find companies with a particular price-to-earnings ratio. Some brokers offer proprietary screeners, while others integrate well-known screeners from third-party providers like Trading View, Trade Ideas, and Zacks.

Charting Features

Charting helps you visualize price trends for a stock or other investment, allowing you to identify patterns that may guide your trading decisions. This approach, known as technical analysis, varies across brokers.

• Chart Type: Common chart types include bar, candlestick, and line charts. More advanced brokers may offer additional charting options like hollow candles and step lines.
• Indicators: Technical indicators enhance charts by providing insights on factors like trade momentum, price volatility, and investor sentiment, helping you anticipate future price movements.
• Drawing: Advanced brokers may offer drawing tools that let you apply strategies such as Fibonacci retracement levels or Gann indicators, which assist in identifying price patterns.

Deposit and Withdrawal Options

When choosing an online stock broker, consider how you want to deposit and withdraw funds. Electronic ACH transfers are typically free, but other methods, such as wire transfers, may come with fees.

Additionally, check the availability of deposited funds. Some brokers offer instant deposits, allowing you to begin trading with a portion of the funds before they fully clear. This feature can help you seize investment opportunities promptly.

Order Types

Order types allow you to specify the conditions under which a trade should be executed. While some brokers offer only basic options, others provide more advanced choices. Consider whether you need additional flexibility beyond the basic order types.

Basic Order Types:

• Market: Executes the trade at the current market price, with no conditions.
• Limit: Sets a maximum price to buy or a minimum price to sell. The trade will only execute if the price meets these limits.
• Stop: Executes the trade only when the market price reaches the specified stop price.

Advanced Order Types:

• Contingent: These orders only execute if specific conditions are met, such as a percentage price change, reaching a 52-week high, or meeting certain volume criteria. They provide more customization than basic limit orders.
• One-Cancels-the-Other: OCO order setup allows you to create two orders, where if one is executed, the other is automatically canceled.
• One-Triggers-the-Other: OTO order type involves two trades, where the execution of the first order triggers the second order to go through.

Order Timing and Execution

Brokers vary in the speed at which they execute investment orders. If you plan to use advanced strategies that rely on precise timing, it’s important to choose a broker known for fast order execution to ensure you can act on market opportunities quickly.

Real-Time Quotes

Brokers typically display market prices with a delay of around 15 minutes. For active traders where every second matters, it’s worth seeking out a broker that provides real-time quotes. Some brokers offer this service for free, while others may charge a fee.

Extended-Hour Trading

Traditional stock, bond, and ETF markets are open during regular business hours, Monday to Friday, from 9:30 AM to 4 PM ET. However, some brokers provide extended-hour trading, allowing you to trade outside these standard hours, which can be beneficial if you prefer to invest at different times.

Backtesting and Paper Trading

Backtesting allows you to test a strategy against historical data to see how it would have performed while Paper trading lets you practice building a portfolio with virtual money. Both tools are helpful for beginners who want to experiment and learn. If this sounds useful to you, consider a broker that offers these features.

Education

Brokers often offer a variety of educational resources to help you enhance your investing skills. Depending on your preferred learning style, you can look for brokers that provide blogs, videos, newsletters, courses, podcasts, and social trading.

Customer Support

Review the available customer service options and support hours at a broker to ensure they meet your needs. Consider whether support is available online only, or if you can speak with someone over the phone. Additionally, verify if licensed brokers or financial advisors are available to assist you.

Evaluate Security Measures and Account Protection

You rely on a broker to protect your investments and funds. Stock brokers are regulated by government agencies such as FINRA and the SEC. If a broker violates regulations, like misleading you about costs or mishandling trade executions, they could face fines and be required to pay restitution to you. However, it’s important to do your research and choose a reputable broker from the start. Additionally, brokers are required to have the following insurance to safeguard your funds:

• FDIC: FDIC insurance protects your funds in bank deposit accounts, like a cash management account with a broker. The standard coverage is $250,000 per investor, ensuring that if the broker goes bankrupt, your cash is insured and you’ll be reimbursed.
• FINRA: FINRA sets regulations to safeguard your private information and requires brokers to keep investor funds separate from their own accounts.
• SIPC: SIPC insurance covers your investments and cash in the event the broker goes bankrupt. It provides up to $500,000 in protection, with a $250,000 limit for cash.
• Supplemental: Some brokers offer additional supplemental insurance, such as FDIC coverage above the standard $250,000. If you have a large balance, look for brokers that provide this extra coverage.

Account Security

Brokers should have strong security measures in place to protect your account from identity theft and asset theft. Data breaches, where brokers may lose sensitive information like personally identifiable information (PII), can occur, so it’s important to ensure your broker has robust online security.

Many brokers offer full protection against losses from fraudulent activity, meaning you’ll be reimbursed 100% if you lose money due to fraud. Additionally, two-factor authentication (2FA) is commonly used to enhance security, requiring you to verify your identity using your smartphone when logging into your account.

Test the Platform’s Usability

Once you find a broker that seems promising, it’s a good idea to test it out first. Many brokers allow you to set up an account with no minimum deposit, letting you explore the platform and get a feel for how it works. You can also reach out to the broker to inquire about demo sessions or tutorials that show how to use the platform. This will help you make an informed decision before committing any real money.

Pick the Best Online Broker for You

Once you’ve followed all the steps in the guide to choosing an online broker, you should feel confident in making your selection. The next step is to complete your account setup and make your first deposit to start investing.

Keep in mind, you’re not limited to a single broker. For example, you could allocate part of your portfolio to a broker with a strong robo-advisor and another portion to one that excels in active day trading. If you find your initial choice isn’t meeting your needs, you can always transfer your portfolio to a different broker. While this may involve a transfer fee, many brokers are willing to cover the cost to earn your business.

Conclusion

Choosing an online stock broker is the start of a partnership you’ll rely on for years. Take your time and avoid jumping into the first option you come across. By carefully comparing factors such as fees, investment options, platforms, and account features, you can make a well-informed decision and feel confident in your choice. For more guidance, explore our recommendations for the best online stock brokers to find the perfect fit for your investment goals.