New investors might want to start investing in the stock market but could be unaware of where to start or what financial products or analysis tools are available. Investing used to be conducted by expensive Wall Street brokers on behalf of their clients. Now, the best online stock brokers give new traders the power and investment advice to do with their money as they please, without ever placing a call to a broker.
How The Stock Market Works
To raise money, companies can issue stock. This stock is sold on exchanges and traded by brokers.
These shares grant stockholders a small equity stake in the company. Initially, the price of these shares is determined largely by the company and its analyst.
After the initial offering, the price of a company’s shares is determined by the market. Much like an auction, prices go up or down depending on the market’s demand for the shares.
How To Invest In Stocks
Beginning investors usually stick to three main categories of assets:
- Stocks
- ETFs (exchange-traded funds)
- Mutual funds
ETFs and mutual funds are common investment vehicles that are traded similarly to stocks. Both are bundles of different assets, designed to help diversify portfolios. However, there are however a few critical differences between the two.
- The vast majority of ETF trades are managed passively and are designed to mimic the movements of certain asset classes. For example, you can buy an ETF designed to mirror the S&P 500. Because they’re more actively managed, mutual funds often have higher expense ratios.
- Mutual fund managers try to beat the market and ETFs try to mirror certain parts of the market.
- ETFs are also traded intraday like stocks, meaning the prices change throughout the day. Mutual funds are priced once a day at the close of the market.
In general, there are two ways to make money in the stock market:
- From an increase in the price of the security
- By investing in companies that pay periodic dividends
Dividends are payments issued by a company to its shareholders. Many investors reinvest these dividends, meaning they purchase additional shares instead of taking a cash payment.
Online brokerage accounts give traders full control to buy and sell securities with just a click of a button. None of the ten brokers listed here require minimum balances or charge inactivity fees.
Best trading platforms
These modern online brokerages also make it easy and affordable to learn stock trading since most of them offer extensive educational programs and commission-free US stock/ETF trades.
TD Ameritrade
Features
TD Ameritrade is a reputable discount broker that offers a wide selection of tradable securities.
To help beginners choose investments, they offer a great selection of market research options and online trading tutorials. Information is available both from in-house experts and third-party services like Morningstar.
Investors of all levels can profit from TD Ameritrade’s educational services. In addition to a wide selection of training videos and articles, they offer daily educational webinars. Investors that live close to a branch office can also attend in-office presentations.
TDAmeritrade.com’s trading platform has all novices need to build portfolios, including their TD Ameritrade Robo-Advisors. They can also trade risk-free by investing $100,000 in virtual money.
Costs
US Stock and ETF trading are commission-free. There are also over 4,100 no transaction fee mutual funds. Options cost $0.65 per contract and have no base commission.
Pros:
- Phone and email support are available 24/7. The website offers great research and education options for all types of investors.
- Free DRIP (Dividend Reinvestment Plan)
Cons:
- Broker-assisted trading can be quite expensive at $44.99 per trade.
- The mobile app – TD Ameritrade Mobile – is only available on iOS.
See the full review of TD Ameritrade here.
IBKR Lite
Features
Interactive Brokers LLC (IBKR) was founded in the 1970s. They launched IBKR Lite in 2019 to cater to beginning investors.
IBKR Lite offers a full selection of tradable securities including bonds, forex, futures, and foreign ADRs. As traders’ skill and comfort levels progress, they can try investing in other securities aside from stocks and ETFs.
While there is a lot of research available for free – some require a subscription. They also have a free tool, Fundamentals Explorer, which enables access to analysts’ reports and fundamental data on many companies.
Traders can also diversify portfolios via IBKR’s fractional shares program. This allows investors to purchase a portion of a share, which can be particularly useful if they’re interested in shares trading at high prices.
Costs
IBKR Lite offers unlimited free trades for US-based stocks and ETFs. There are also 4,300 commission-free mutual funds. Options cost $0.65 per contract and have no base commission.
Also, IBKR Lite gives traders access to trading tools like a Robo-advisor. There are 70 different portfolio options, over half of which allow investments starting at $1,000.
Pros:
- Fractional shares are a great way to diversify portfolios.
- IBKR’s trading platform allows traders to set up customized alerts.
Cons:
- 24/6 customer support via text email & phone could leave investors hanging if they need assistance on a Sunday.
- IBKR caters to more advanced investors. Pricing can sometimes be difficult to decipher and depends on the account type and trading frequency.
See the full review of Interactive Brokers here.
Sofi Active Investing
Features
While SoFi has been around since 2011, they’re relatively new to the brokerage firm industry. SoFi or Social Finance’s original aim was to offer students more affordable ways to finance their education.
While SoFi is great for newer investors, advanced traders and people thinking about using retirement accounts could be frustrated by the limited investment choices. They don’t have a wide selection of accounts like IRAs nor offer mutual funds or options.
However, traders can invest in cryptocurrencies like Bitcoin and Ethereum with this broker.
For clients with recurring monthly deposits of $20 or more, SoFi offers career counseling and discounts on other SoFi loans.
Traders that need extra help can consult a SoFi financial advisor for free. Although these certified financial planners are bound to act in a trader’s best interest, they won’t pick stocks for them.
Costs
SoFi charges no fees to trade stocks or ETFs. Cryptocurrencies like Bitcoin, Ethereum, or Litecoin are available for a 1.25% charge.
Pros:
- SoFi offers fractional shares, or SoFi Bits, of many well-known companies like Facebook, Amazon, or Starbucks.
- All customers have unlimited access to certified financial planners and career counselors.
Cons:
- Selection is limited to stocks, ETFs, and cryptocurrency. Investors looking for mutual funds or forex must go elsewhere.
- No tax-advantaged accounts are available which is not ideal for those saving for retirement.
Firstrade
Features
Firstrade has been around since 1985. Originally a brick and mortar brokerage, in 1997 they made the move to become an online brokerage.
Firstrade offers all clients access to its three trading platforms which are functional and intuitive. Firstrade Navigator allows full customization of the home screen to see all important market info, charts, and investment positions. The Mobile version is intuitive and syncs well with the desktop platforms.
Firstrade clients have free access to research from third-party sources like Morningstar, Benzinga, Zacks & Briefing.com. They also have bi-weekly educational seminars available on topics like options trading.
Costs
All stocks, ETFs, and mutual funds are commission-free, options contracts also have no fees.
Firstrade earns money from interest on idle cash in bank accounts, and by charging interest from investors investing with margin accounts.
Pros:
- All trades are commission-free. Even options trade without a per-contract fee.
- The mobile trading platform is intuitive and syncs with Firstrade’s desktop platform.
Cons:
- Investors can’t trade crypto, forex, or futures.
- Limited customer support is only available M-F 8 AM – 6 PM Eastern via online chat, email & phone.
Merrill Edge
Features
Merrill Edge is the online platform of a full-service broker, Merrill Lynch. It’s ideal for Bank of America customers since Bank of America purchased Merrill Edge during the 2008 financial crisis.
Clients of both firms can see BoA & Merrill Edge accounts with a single login. Investors can also check investment account balances at BoA ATMs.
The web trading platform is easy to use and is sufficient for most beginners. Traders that invest trade regularly, or have a balance greater than $50k also have access to MarketPro, Merrill Edge’s advanced platform.
Educational materials like in-depth investment research are available from BoA Merrill Lynch Global Research as well as respected third-party sources like Morningstar & Trefis. Merrill Edge also has a robust selection of educational resources available in the form of videos, courses, and articles.
Costs
Stock and ETF trading is commission-free. Merrill Edge offers over 2,700 no transaction fee mutual funds. Options cost $0.65 per contract and have no base commission.
Pros:
- Ideal for Bank of America customers due to the integration of accounts and the preferred rewards program.
- 24/7 phone and live chat support as well as in-person support in over 2,500 Bank of America branches.
- Apple Watch app allows traders to see market prices and stock tickers.
Cons:
- Fewer types of securities than some other best brokers mentioned here. Advanced traders might feel that the selection is inadequate and prefer a brokerage firm that provides access to forex and futures.
- No access to OTC markets and stocks under $5/share are delisted from the exchange.
Ally Invest
Features
Ally Invest was born out of Ally Financial’s 2016 purchase of TradeKing. The discount broker offers a good selection of securities, including forex.
Ally Invest’s browser-based trading platform is fast and flexible, allowing traders to customize dashboards. As it’s web-based, investors can trade from any computer without needing to download a desktop platform. The mobile apps also give customers access to core functions, like trading and price tracking.
Solid research and tools help traders identify the best strategies and keep track of the tax implications with each trade. Real-time streaming data isn’t available to clients making fewer than 10 trades per month.
Ally also offers a free managed portfolio option (minimum $100 invest). This feature is similar to the Robo-advisors available through other brokers.
Costs
Ally Invest offers free trades for US-based stocks and ETFs. Options have no base commission and cost $0.50 per contract. However, mutual funds are not free and start at $9.95 for some no-load funds.
Pros:
- Customer support is available 7 days a week 7 am-10 pm.
- Robust set of tools to help investors get the most out of trading, including some managed portfolio options.
Cons:
- No transaction-fee-free mutual funds. Investors looking to invest in mutual funds should look elsewhere.
- No branches and real-time data are only available to higher frequency traders.
Vanguard
Features
The Vanguard Group has been around since the inception of the Vanguard 500 Index Fund in the mid-1970s. Vanguard is essentially the inventor of the low-cost index fund. At 0.1%, Vanguard index funds offer the lowest average expense ratio of the industry.
Vanguard is best for traders focused on long-term or retirement investing through ETFs and mutual funds. They also offer two mutual funds and two ETFs for socially conscious investors.
Vanguard’s trading platform is basic and better suited to buy and hold investors than active traders. Research resources are available for learning the basics of investing. Much of the research and tools are focused on retirement planning and not active trading.
As part of their efforts to keep expenses low, Vanguard offers no promotions like free stock or cash incentives to new customers.
Costs
To take advantage of no minimum balance requirements, investors must select e-delivery for statements.
Vanguard investors can trade US-Based stocks and ETFs with zero trading commissions. They also offer nearly 3,200 no-transaction-fee mutual funds.
Options have no base commission but cost $1.00 per contract. Traders that have an account balance of over $1 million, will get 25 free options trades per year.
Pros:
- For investors looking to invest in low-cost ETFs and mutual funds, Vanguard is the place to be.
- Clients have access to great retirement planning tools like IRAs, Roth IRAs, and investment advisors.
Cons:
- While accounts have no minimum balance, many features require higher balances. Access to the Robo-advisor and many of Vanguard’s actively managed funds require $50k. Admiral Shares, Vanguard’s ultra-low-cost ETFs, requires a minimum investment of $3k. This puts them out of reach for many beginners.
- The basic trading platform lacks many of the analytical tools offered by other brokers.
Fidelity
Features
Fidelity has been around since 1946 and is similar to other discount brokers like TD Ameritrade and Charles Schwab.
Investors have access to two trading platforms: Fidelity.com and Active Trader Pro. The mobile app is very functional and has great reviews both on the Google Play store and the Apple App Store.
Fidelity also has a third platform in Wealth-lab Pro, a desktop strategy testing software. This platform is only available to clients that conduct more than 36 trades per year and have at least $25k in assets.
Fidelity clients have access to a wide range of free research options from 20 third-party providers. While that amount may seem overwhelming, Fidelity offers quizzes to help determine which providers best match each investor’s investment style.
Costs
Like most brokers, Fidelity offers commission-free trading of US-Based stocks and ETFs. It also has over 3,500 no-transaction-fee mutual funds.
Options have no base commission and cost $0.65 per contract.
Pros:
- Great support is available 24/7 by phone, email & live chat. There are also 197 local branches to offer assistance.
- All cash is automatically directed into its Fidelity Government Market Fund (SPAXX). This fund offers a higher interest rate than a traditional, FDIC-insured savings account.
- Vast amounts of excellent and free research options.
Cons:
- Broker-assisted trades are expensive at $32.95.
- Fidelity’s Robo-advisor charges 0.35% of assets annually.
- At $49.99, commissions are high for mutual funds not falling into the no-fee category.
See the full review of Fidelity here.
Charles Schwab
Features
Charles Schwab was founded in 1971. It’s currently the third-largest asset manager in the US.
All investors have access to three trading platforms that have no trade minimums or fees. The web app offers basic trading functions and is great for beginners. The two other platforms, Schwab.com and SmartStreet, are more advanced and offer better research and tools.
Rookie investors might be especially interested in Schwab’s proprietary index funds and ETFs. Similar to Vanguard, these have extremely low expense ratios.
Investors that prefer to leave investing to the Robo-advisors might want to consider its automated investing platform, Intelligent Portfolios. This service is a personalized portfolio builder designed to help traders self-tailor diversified portfolios.
Charles Schwab also offers top-notch research from in-house and 3rd party sources to guide investors when picking investments.
Costs
It doesn’t charge commissions for trading US-Based stocks and ETFs. Charles Schwab also offers over 3,500 no-transaction-fee mutual funds. Options have no base commission and cost $0.65 per contract
Pros:
- Market updates and stock quotes are available through Charles Schwab’s Google Assistant or an Amazon Alexa Skill.
- Investment screeners and research tools are easy to use.
- Customers have access to 24/7 phone support, live chat, and email. There are also 300 local branches with financial advisors that can provide in-person consultations.
Cons:
- Sweep-cash (uninvested cash in investment accounts) earns less than 0.5%, well below the market average.
- Investors looking to trade foreign securities are out of luck. Charles Schwab only allows traders to invest in US-based assets.
See the full review of Charles Schwab here.
E*Trade
Features
E*Trade has been around since 1981 and is one of the most popular online brokers. Morgan Stanley completed the acquisition of E*Trade in 2020.
For investors just starting out, E*Trade offers a wide selection of webinars and in-branch training to help get them up to speed. Customers also have access to online investing courses created by Morningstar, which cover a host of personal finance topics.
With a minimum investment of $500, investors get access to E*Trade’s Robo-advisor service, which charges 0.3% per year.
Costs
Investors can trade US-based stocks and ETFs commission-free. E*Trade also offers over 4,400 no-transaction-fee mutual funds. Options have no base commission and cost $0.65 per contract.
Pros:
- All 3 trading platforms are available to every client.
- E*Trade’s 30 Local branches are staffed by financial consultants, who can help customers that prefer face-to-face interaction.
- Power E*TRADE app
Cons:
- E*Trade’s website isn’t easy to navigate. It can be difficult to determine the required account minimums and the account closure process.
- It’s not possible to directly buy and sell international securities on E*Trade.
Bottom Line
In addition to being reputable, all of the brokers listed here offer good resources to improve investors’ trading prowess.
Choosing a broker comes down largely to a trader’s personal preferences. Traders should find one whose price structure matches the types of assets they’d like to trade and whose service matches their needs. They should also consider whether or not it’s important to get in-person service as some brokers are 100% online.
Investing in the stock market can be intimidating at first. Luckily, modern fintech gives traders of all levels significant control over their investments.