There are many different types of investments like forex, metals, and derivatives, but some of the most common ones are stocks and bonds. These investments are relatively common and simple compared to more complex ones. So, most investors have exposure to these and need to use a stockbroker to trade them. This guide will highlight some of the most popular brokers, including 100% online trading platforms.
What is a stockbroker?
A stockbroker is a person or company that helps users trade standard investments like stocks (a.k.a equity), bonds (i.e fixed income), mutual funds, and Exchange-Traded Funds (ETFs). Many stockbrokers are common household companies like Fidelity, TD Ameritrade, and Charles Schwab.
Besides this, stockbrokers can oversee employer-sponsored retirement plans like 401(k)s and 403(b)s. These will let employees save for retirement on a tax-deferred or after-tax (Roth) basis. These plans are very complex to set up and maintain, which is why these brokers are needed.
Having a good broker or custodian will ensure that ERISA requirements are met, IRS standards are upheld, and that the plan is functioning properly. Many of these brokers can also be trustees of estates, meaning that they help an investor’s heirs manage the deceased person’s assets.
Yet, they are more commonly used to conduct trades and also provide financial advice to the public. Users can have a phone or in-person consultations with a financial consultant. This consultant would guide them on various topics like investment planning, retirement strategies, and more.
Why are stockbrokers needed?
Stockbrokers are needed to conduct trades and even set up accounts like IRAs, Roth IRAs, brokerage accounts, 529 plans, and more. These brokers will ensure that compliance duties like tax reporting, paperwork, and suspicious investment practices won’t occur.
Also, they can provide research tools like blog posts, video tutorials, and charts. These pieces of training can train novice investors and ensure they don’t make mistakes like selling at a loss or purchasing expensive, underperforming funds.
Since all brokers operate electronically, it’s much easier to find your account statements. These will show your gains, losses, basis, dividend, and interest income. Having these tools will make investing more organized and less stressful, especially around tax time.
What to look for in a stockbroker
First and foremost, it’s crucial to find a broker that is honest, ethical, and has transparent, low fees. Stockbrokers, financial planners, and the industry don’t have the best reputation as con artists have defrauded investors. For example, many seemingly good managers like Bernie Madoff scammed clients out of millions of dollars.
Other brokers have just pushed loaded, high expense funds on their clients. The brokers would collect fat commissions, while their clients would have dismal returns. Luckily, most brokers have shifted away from a commission model and now offer free trades for US stocks, mutual funds, and ETFs.
Instead, many of them make their revenue by charging a fee of around 1% also known as assets under management (AUM). So, a broker would earn $10,000 per year if it was managing a $1,000,000 portfolio. It’s still important to use a broker that provides good service, frequently checks in, and does more than collect the AUM fee.
Technology and compliance are also important traits of a good broker. The best brokers have easy to use technology, mobile apps, and streamlined dashboards. Top brokers also place a high emphasis on compliance by ensuring that income reporting is correct. An ideal broker would also offer different types of investment accounts and have guidance on each one. Great brokers or financial planners should be similar to great teachers, not just salespeople or compliance officers.
Fidelity is one of the top stockbrokers as it offers different types of accounts, has great technology like its mobile app, and is one of the largest 401(k) custodians in the country. Users can trade common securities like stocks, bonds, ETFs, mutual funds, and options. They can’t trade more exotic investments like cryptocurrencies nor Forex.
While Fidelity doesn’t offer alternative investments, it does have commission-free trading for stocks, ETFs and has 3,500 commission-free mutual funds. It ensures that investors save on costs by offering 0% expense ratio funds. This broker also has top-notch research tools from third-party providers like Thomson Reuters and McLean Capital Management. These make it easier to choose the right funds and understand financial planning fundamentals.
- Excellent customer service. Fidelity has great customer service reviews and provides in-person, phone, along with 24/7 live chat. It differentiates itself from pure online platforms by having branches with knowledgable financial advisors. These advisors manage assets for a fee but can guide users on not just investing, but retirement, estate, and health care expense planning.
- Cash management account. Fidelity doesn’t have a retail bank, but it does offer a cash account within each brokerage account. These cash accounts can act as savings accounts as they’re protected under FDIC insurance. The interest rate is relatively low at 0.1% APY, but it reimburses ATM fees and has no monthly maintenance fees.
- Fidelity has good technology overall, but its main site can be tough to navigate. For example, some users have reported that it can be tough to do basic actions like closing an account.
- Margin rates. While it has competitive brokerage fees, the margin rates can be quite high. Margin acts as a loan since the broker loans the investor funds to purchase or short sell investments with interest. It can amplify returns and losses, so only the most advanced traders should use it. The interest rates fluctuate around 6-8% for most accounts, which is higher than most brokers.
See the full review of Fidelity here.
TD Ameritrade is similar to Fidelity as it’s a full service, discount broker. It offers many services like being a custodian for employer-sponsored 401(k)s and investors can open various accounts including IRAs with them. They can also trade standard investments like US stocks and ETFs commission-free. Besides this, they can also trade mutual funds, bonds, options, and even forex.
One of TD Ameritrade’s biggest differentiators is the think or swim forex trading platform. Users can gain access to various currency pairs and can use complex charting to time the market. They can also set alerts and benefit from detailed pieces of training like long blog posts, FAQ sections, and video tutorials.
- First-class customer service. This company has superb customer service reviews and offers 24/7 live chat, phone, and email service. Users can also go to a physical retail branch and work with a financial advisor for help on numerous financial topics.
- Available accounts and investments. Users can set up brokerage accounts, IRAs, and Roth IRAs. They can also try their luck at riskier investments like Forex with Think or Swim.
- Slow, account opening procedures, and paperwork. TD Ameritrade is known for its great technology, but account opening procedures aren’t 100% online. For example, traders must submit physical paperwork to open brokerage and retirement accounts.
- Lack of international investments. While it’s possible to trade forex, traders can’t trade foreign stocks, bonds, or mutual funds. So, if a trader wants significant international experience, he or she should look elsewhere.
See the full review of TD Ameritrade here.
ZacksTrade is different from Fidelity and TD Ameritrade as it’s a 100% online brokerage. Despite this, it still has free human broker-assisted trades. It does have commissions for stocks and ETFs which start at $0.01 per share. This might seem cheap, but it lags competitors as most brokers offer commission-free trading for US stocks and ETFs.
Besides this, it offers typical investments like stocks, bonds, ETFs, mutual funds, and options. Unlike other pure online brokerages, it doesn’t let users trade riskier investments like cryptocurrency or forex. It also differentiates itself from larger brokers by letting traders buy and sell foreign stocks and investment funds.
- Top-notch research. It has a wide variety of free and premium research tools. This also includes the famous Zack’s research newsletter. Users can also access more in-depth tutorials for subscription fees that can vary.
- Foreign trading. Users can trade on more than 90 stock exchanges. This can add great diversity to any portfolio.
- Commission-free funds. Zack’s has low commissions, but no commission-free trading. It also has funds that have relatively high expense ratios, which greatly reduce returns over time.
- High account minimum. Most brokers have low or no account minimum. Yet, this firm requires each user to have $2,500 in an account before trading. This can be quite difficult for traders on a budget.
See the full review of ZacksTrade here.
Charles Schwab is similar to Fidelity as it’s one of the largest brokerage firms in the country. It also has retail branches with financial consultants. This broker also offers common investment products and shies away from cryptocurrency, forex along with other risky investments.
It also offers commission-free trading for US stocks and ETFs. Like other brokers, it charges for options trades, which are $0.65 per contract. Besides this, it has no minimum account balance, annual fees nor high transfer fees. Its ETF list makes choosing investments easy as users can sort and filter for certain qualifications. Traders can choose the best ETFs for them based on expense ratio, sector, Morningstar category, and benchmark index.
- Robo Advisor or Schwab Intelligent Portfolios. The Schwab Intelligent Portfolios uses automation to build and manage risk-adjusted portfolios. There are no advisory fees or commissions, but the minimum balance is $5,000. This Robo advisor can be a good option for “do it yourself” or DIY investors.
- Google voice and Alexa technology. Schwab’s skill tool can be integrated with Amazon Alexa. This lets users give Schwab voice commands to find tickers, quotes, and even set alerts for different types of investments.
- Lack of diverse offerings. Charles Schwab lets users trade standard investments, but offers little exposure to foreign investments. So investors that want to gain access to foreign markets might be better off with a different broker. It also doesn’t have options for trading Forex nor common cryptocurrencies like Bitcoin.
- Low-interest cash account. Any uninvested brokerage account funds are transferred to an account paying less than 0.50%. Users could be better off placing those funds into its money market fund, SWVXX, which pays 0.63%.
See the full review of Charles Schwab here.
TradeStation is different from the above brokers as it solely operates online. It doesn’t put as much emphasis on managing money. Instead, it can be seen as a platform for more advanced, active traders. For example, users can trade futures and cryptocurrencies with this broker. One major differentiator is that traders can gain access to IPO companies. IPOs or Initial Public offerings refer to when companies first start trading their stock on the market.
Like other brokers, it also offers retirement accounts like IRAs, SEP IRAs, and SIMPLE IRAs. It also has different trading accounts based on business entities like LLC, LP, and sole proprietor.
- Extensive training resources. It has virtual simulation platforms, which let users conduct stock trades risk-free. They use fake cash balances to learn the ropes without losing money. Besides this, there are 270 indicators, and traders can access over 90 years of market data. These tools will let them anticipate important investment patterns and trends.
- Variety of investments. From IPOs, cryptos, and futures, it doesn’t fall short with alternative investments. The Click IPO app makes it easy to sort through prospectuses and set alerts for new IPOs.
- High fees. It charges $14.95 per mutual fund transaction when most brokers waive this fee. There are also subscription fees for its technical research platforms. Serious traders can access matrixes, scanners, and other advanced tools starting at $99/mo.
- Lack of financial planning support. Tradestation mainly focuses on trades and not financial planning issues like retirement or estate planning. It doesn’t have advisors that can assist with these broad issues.
See the full review of TradeStation here.
Interactive Brokers is geared towards more advanced traders instead of new investors as it emphasizes trading forex, options, and futures. It has margin accounts with rates as low as 0.85% for accounts with $3.5 million or more. The highest rate it charges is 1.55% for accounts with less than $25K.
The IBKR Lite plan is geared toward novice investors as it lets them trade US stocks and ETFs without commission. This plan also has no maintenance fees or account minimums. Its IBKR Pro Plan includes institutional accounts and has more complex trading tools like IBKR APIs. The IBKR APIs let traders create their own trading applications, use intricate chart customization, and integrate it with IBKR technology.
- Invest in fractional shares. Traditional brokers have a minimum order of 1 share per investment. With Interactive Brokers, traders can buy partial shares of high priced investments. There is no minimum cash balance for fractional shares and it can be done with both account types.
- Lowest margin rates. This company proudly states that it has the lowest margin rates in the industry. This can be a bargain considering the lowest rate is 0.85%. Even its highest rate is 6% lower than the industry standard of 7%.
- Website User Navigation. This broker offers different types of accounts to various investors. It can be tricky to navigate through these accounts and its commission structures. Some traders have had difficulty determining which commission structure applied to them vs. institutional users.
- Inactivity fees. Many brokers have waived these, but this company charges a $20 inactivity fee for pro accounts with less than $2,000. Pro accounts with more than $2,000 will be hit with a $10 inactivity fee.
See the full review of Interactive Brokers here.
Robinhood is an online stockbroker that was the pioneer in commission-free trading. It was founded back in 2013 when most brokers were charging trading commissions and had minimum account balances. This company wanted to disrupt the status quo by offering free trades and no account minimums. It still has these and it lets investors trade stocks, ETFs, options, and cryptocurrency.
Robinhood is best for traders that want to have low fees, simple trading options, and a robust mobile platform. It’s great for those that mainly focus on stocks and ETFs as it doesn’t offer mutual funds or bonds. Also, it wouldn’t be ideal for those saving for retirement as it doesn’t have IRAs or Roth IRAs.
- Easy of use. Robinhood is a simple platform and prides itself on quick account approvals. Everything is done virtually and can take less than an hour for traders to become approved and initiate bank account transfers.
- Savings account. Robinhood comes with a 0.30% savings account which is higher than most competitors. It also has a high FDIC insurance limit of $1.25 million, so there is virtually no risk of losing cash savings.
- Limited investment options and accounts. Investors should look elsewhere if they want to establish IRAs, SEP IRAs and have accounted for different financial goals. It’s not a good choice for those that want to trade bonds, mutual funds or forex.
- Minimal customer support. This broker doesn’t offer phone or in-person support. Instead, users can email a support address and use its educational resources to solve problems. Some of these educational resources include blog posts, guides, and FAQ pages.
See the full review of Robinhood here.
While there are many types of investments, stocks and bonds are some of the more mainstream ones. ETF trades are becoming more common, which can be done via a stockbroker. It’s much easier to trade these instruments as everything is done virtually. Before selecting a broker, it’s important to evaluate criteria like pricing, support, online platforms, mobile trading, real-time alerts, available investments, types of accounts, and more.