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.
What makes the “perfect” brokerage account will vary from investor to investor. An active options trader will have far different needs than a buy-and-hold dividend investor. So this isn’t a case in which one size fits all.
In our Broker Center, we’ll help you figure out which brokerage account is best for you. Check out the table and commentary below to learn more about your options.
Charles SchwabMore Info >
E*TradeMore Info >
FidelityMore Info >
Interactive BrokersMore Info >
Merrill EdgeMore Info >
OptionsHouseMore Info >
ScottradeMore Info >
TD AmeritradeMore Info >
TradeKingMore Info >
TradeStationMore Info >
Wells FargoMore Info >
Charles Schwab is 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. Today, Schwab remains an excellent option for stock, bond and ETF 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 makes 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 allows for 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.
Which broker is the “best” is difficult to determine because what works for one investor might not work for another.
However, 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.
Merrill Lynch has really come a long way. Since time immemorial, Merrill has been a traditional wire house broker that mostly shunned smaller, do-it-yourself investors. But with Merrill Edge, Merrill offers a competitive brokerage account with $6.95 trades, automatic dividend reinvestment and no minimum deposit.
Merrill Edge is owned by Bank of America, so if you do your regular banking with BoA, Merrill Edge might be your best option due to the integration. You can move funds back and forth from your Bank of America checking account in real-time.
If you do a lot of international investing, your options here might be a little limited. But overall, Merrill Edge is a very decent option, particularly for a novice investor.
OptionsHouse markets itself primarily to options traders, but it also offers competitive stock trading. Its selection of mutual funds and other products aimed at retail investors is somewhat limited, however.
OptionsHouse is a broker designed first and foremost for options traders rather than buy-and-hold investors. So if options trading is your forte, OptionsHouse is a very good … well, option.
Probably the single greatest selling point for OptionsHouse is its Trade Journal. This essentially takes a snapshot of market conditions at the time of a trade. This can be incredibly useful for back-testing trade ideas.
If you’re looking for a brokerage account for buy-and-hold mutual funds, OptionsHouse probably isn’t for you. But if you’re primarily an options trader, OptionsHouse is definitely worth a look.
Scottrade is a very decent competitor today, with good customer service, an easy-to-use interface, and a 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 back-testing 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.
Like Fidelity, Vanguard is traditionally thought of as a mutual fund shop, and mutual funds are still very much Vanguard’s focus. That said, Vanguard does offer full stock brokerage services and at very competitive rates. For accounts less than $50,000, your first 25 stock orders of the year are $7 each. After that, the rate goes up to $25. But for accounts $50,000 to $500,000 in size, all trades are $7. And for accounts over $500,000, stock commissions get dropped down to just $2 per share. As an added sweetener, accounts of all sizes can trade Vanguard ETFs for free.
If you primarily invest in mutual funds and ETFs — and particularly in Vanguard’s inexpensive index products — and only occasionally trade stocks, Vanguard is your best option. Though, the $2 stock trades also make Vanguard a very affordable option for investors with larger accounts.
Like Bank of America’s Merrill Edge, Wells Fargo offers a competitive brokerage account option with WellsTrade. Stock trades are only $8.95, and that price gets knocked down to $6.95 if you have a larger banking relationship with Wells Fargo.
As with Vanguard, the Wells brokerage option is tailored more for long-term mutual fund investors who also buy the occasional stock. Most of their online tools are designed for screening mutual funds rather than researching stocks. But if you currently do your regular banking at Wells Fargo, consolidating your finances with WellsTrade is a very sensible option with very competitive prices.