Best Stock Brokers

What is a stock broker?

A stock broker is a professional who works at a brokerage firm and trades stocks and other securities in return for a commission. In the US, a stock broker must pass a set of financial exams called the Series 7 and Series 63 in order to be licensed. If you are interested in becoming a stock broker, you can learn more about the process on FINRA’s website.

But how are stock brokers relevant to your personal finances? Most people interact with a stock broker in one of two ways: either with a financial advisor who can help guide your financial decisions, or through an online platform like TD Ameritrade that gives you the ability to buy and sell securities, but does not provide personalized financial advice.

Traditional versus Online Brokers

There are two broad categories of brokerages: traditional and discount (often called “online brokers”). Traditional brokerages are what typically come to mind when people think of financial advisors: real-life professionals who guide you towards your financial goals through personalized recommendations. They offer a comprehensive range of financial planning services, including investing advice, tax advice, retirement and estate planning, and much more. While traditional brokerages provide a highly personalized experience, it comes at a cost. They can charge a fee amounting to 1-2% of the assets they manage.

Discount brokers simply provide the online platform that allows you to buy and sell stocks, bonds, mutual funds, and other types of investments. It is entirely up to you to make the investment decisions. Some discount brokers like TD Ameritrade do offer in-person advisory services, but because these are not part of their cored product offerings, they are far less comprehensive than those offered by a traditional broker. That said, the cost of a discount broker is dramatically lower. In fact, most discount brokers don’t charge yearly account fees, and just charge a $5-$10 commission on the trades you make. Discount brokers are a more affordable option for the majority of investors, so we will focus on them. But if you want to learn more about traditional brokers, check out our Ask an Advisor platform for more information.

Online Stock Brokers and Where to Open an Account

Before you open an account with an online broker, assess your financial situation. Are you in a position to invest, and if so, what are your goals? One of the main reasons that people don’t invest is the belief that they can’t afford to do so. Even if you are only able to contribute $20 per month, it is still worthwhile to open a brokerage account and begin investing. For example, if you were to invest $20 per month for 30 years and you earned an 8% yearly return, your total contribution of $7,200 will have grown to $27,389. Giving your money time to compound is one of the core principles of investing, and a small amount of money can grow exponentially over the course of 20 to 30 years.

It is also important to have a clear financial objective in mind. Different brokerages are tailored towards different types of investors. Most people are investing for long-term goals like retirement or buying a home. For these investors, a broker should offer a variety of mutual funds and ETFs, provide quality customer service, and not charge account inactivity fees. On the other hand, more active investors will care about other factors, such as the price of trades, research offerings, and data tools.

The actual process of opening an account is incredibly simple and should take no more than ten minutes online. The challenge is selecting the right broker for your needs. For the majority of investors, there are several criteria that their broker should meet:

  • Commission-free mutual funds and ETFs with low expense ratios
  • Accessible and high-quality customer service (with access to brick and mortar branches)
  • Low account minimums and no account inactivity fees
  • Easy-to-use online interface

Best Broker for First-Time Investors: TD Ameritrade

Easy-to-use with great customer service

  • 100+ ETFs and thousands of no transaction-fee mutual funds, 24/7 customer service, and an intuitive web interface
  • Commission Per Trade: $9.99
  • Account Minimum: $0
  • Promotion: Fund a new account with $2,000 to receive 60 days of free trades and up to $600
  • Sign up for TD Ameritrade

TD Ameritrade is also our pick for best overall broker for new investors because it has consistently high customer service ratings and offers a full suite of trading, research, and educational tools. They offer more than 100 commission-free ETFs and thousands of no-transaction fee mutual funds. For those who value in-person interaction, TD Ameritrade has over 100 branches across the U.S.

Best Broker For DIY Investors: TradeKing

Provides similar tools and capabilities as larger brokers at half the cost

  • Improved stock and ETF screening capabilities, robust online investor forum
  • Commission Per Trade: $4.95
  • Account Minimum: None
  • Promotion: Refer a friend and both receive $50
  • Sign up for TradeKing

TradeKing offers similar tools and capabilities as its larger competitors, but commissions are far cheaper at $4.95 per trade. The company has a simple user interface and differentiates itself with an active community forum where investors share and discuss ideas. TradeKing’s research offerings have dramatically improved since its merger with Zecco. An investor looking for a lower-cost version of TD Ameritrade or Scottrade should consider TradeKing. One thing to watch out for is a $50 maintenance fee that TradeKing will slap on any accounts that have an account balance less than $2,500 and have been inactive for a year.

Best Brokers For Active Investors: Lightspeed

Cheapest trades, great execution, and no frills

  • Extremely low commissions with direct market access
  • Commission Per Trade: $0.0045 per share ($1 minimum per trade)
  • Account Minimum: $10,000
  • Promotion: 30 days of unlimited free options trading when you fund an account
  • Sign up for Lightspeed

Active traders want extremely low commissions, and Lightspeed provides that with ETF and stock commissions at $0.0045 per share and a $1 minimum per trade. Other deep-discount brokers like Interactive Brokers also have very low costs, but Lightspeed edges them out through better customer service. Lightspeed provides direct access to ECNs and exchanges, which is important for active traders. Lightspeed also has a robust trading analytics platform, but it is very complex and has a very steep learning curve to master. Overall, Lightspeed is a great option for day traders and professional investors who need cheap executions, but if you only trade occasionally or use a buy-and-hold strategy, consider the other options above.

 

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