Online Stock Trader
If a person wants to invest in stocks, mutual funds, bonds, REITs, and other such investments, then the simplest way to do that is with a broker. There are many brokerage firms in the US. There are offline old-school brokerage firms with personal brokers and then there are the new-age online brokerage firms.
The offline firms have a specific broker assigned to every individual customer. You can get financial advice from this broker and carry out your trades through that broker. However, such a service will cost you money. The money could be either in the form of a hefty transaction fee per trade or a yearly advisory fee.
With the advent of technology, a new type of brokerage firm has made space for itself in the market. This new type of brokerage firm is the online trading firm.
These are websites that allow an individual to open an account and trade in all sorts of investments that traditional brokerage firms handle. The individual can even learn about a variety of investment options using research curated by the online brokerage.
The advantage of using an online trading company is the low cost. Since there is no physical branch and a physical person, online trading is cheaper than traditional brokerage trading. Your per trade fee could be a small fraction of what a full-service brokerage firm would charge.
An online trading website also offers you speed and control. Firstly, being the account holder, you are in complete control of your investments. You are also the person in charge of deciding what investments to make and when to make them.
There is no talking to a broker and asking (or sometimes persuading) him/her to make a trade for you. If you think something needs to be bought or sold, you have to simply click some buttons. Making trades through online trading websites is also fast.
The trades happen over the internet, and the user interfaces of these online brokerages are quite simple and easy-to-use. With a traditional brokerage firm who might have thousands of clients, the process of making trades could be a lot longer. You have to call, speak to your broker, who will then make the trade or ask a designated person to do so.
When you think about whether to go with an offline broker or an online broker, you need to think about your needs and what suits you better. If you are going to be making multiple trades with high frequency, having a low per trade cost is important.
However, if you are going to be a long-term investor and value the personal advice of your designated broker, you may want to look at the offline option.
Features of online trading websites
If you do decide to go for an online broker, then you must understand the features that such websites offer. Once you understand the offering, only then will you be able to compare different online brokerages.
Cost: This is the number one metric that all prospective investors look at. The cost per trade and any other fee that the online brokerage charges for its services is desired to be as low as possible. Some firms will not charge you for trading ETFs and mutual funds. Hence, if you are mainly going to invest in only those two financial instruments, then select a firm which will waive trading fees on them.
Then, you may also want to be careful about inactivity fees. Some firms like to charge their inactive clients an inactivity fee for not making trades over a long period of time. If you are not going to trade frequently, then you might want to keep away from such offerings.
There is also something known as withdrawal fee, which is a pre-determined amount that the brokerage firm charges you for withdrawing funds from your brokerage account and transferring it to your bank account. If you plan to withdraw and deposit funds frequently, then factor these fees in before you make any decisions.
If you plan to trade on margin (which is not really recommended unless you know what you are doing), then take some time to understand margin fees. These fees can be quite high.
Lastly, many online trading websites have value-added services which go more into a higher level of service and more research content. You will obviously pay more for such extra features. The more you pay, the more you get. So, study specific features and their respective costs to you when you compare various online brokerages.
Account minimum: This is the minimum amount of funds that you need to have in your new brokerage account to begin using the account. Different companies will have different requirements as far as account minimums are concerned.
Some will have no minimum required amounts, some will have $500, while some may have requirements as high as $10,000. Keep in mind that even without any minimum requirements, you will still need enough funds to pay for a trade and the commission associated with that trade if you are going to transact.
Research: If you have decided to opt for an online brokerage, then chances are that you have prepared yourself to do things on your own. That DIY also includes research about investments. Hence, check what kind of research and information tools each prospective online brokerage website offers. Is the research in-depth enough to your liking? Are the trading charts good? Do you feel comfortable using the information that is available? Research will be a critical part of your investment journey and you should try and opt for the best in this aspect of online investing.
Customer Service: Different online firms offer different kinds of customer service. Check if there is 24/7 phone support or if the call center works during specific times. Is there online support along with phone support? What about paying a fee and getting a designated account manager. See if such features are available if you need them.
Variety and choice of investments: Most online brokerages offer investments in stocks, bonds, fixed deposits, mutual funds, ETFs, REITs, etc. But what about futures and options? If you plan to trade in derivatives, then look for the availability of those investments. Some people may be interested in alternative asset classes like power trading and cryptocurrencies.
If you are one of them, then make sure that such investments are offered on the online brokerage that you plan to work with. If you also want to operate your IRA or 401k from the online platform, check if you can transfer your account to the new online brokerage account that you are about to open. And make sure you inquire about any charges or fees to do such a transfer.
Best reviewed online trading websites
Now that you have a basic idea of what online brokerages are and what features they offer, have a look at some of the best websites that we reviewed. This is not an exhaustive list and there are other companies not on this list which could actually be more useful to certain individuals.
Hence, use this list as a starting point and always do your own research.
TD Ameritrade – This broker is one of the best. Whether you are experienced or a beginner, TD Ameritrade is a great place to start your investment journey. It also has a wide selection of investment options.
It is also well-known for investor education, offering the right tools and research for an individual to learn about investments. There are online courses, instructional videos, and trading demos available to all users. Per trade fee is $6.95 and there is no account minimum.
Ally Invest – If low cost is what you are after, Ally Invest is difficult to beat. It has a low $4.95 fee per trade. That is the lowest among most major online brokers. There is no minimum account requirement either. It has a good number of research and learning tools as well. Beginner investors will find Ally Invest an attractive option.
CharlesSchwab – The best selling point for CharlesSchwab is its commission-free ETFs and no-transaction-fee mutual funds. There are no inactivity fees either. Customer service quality is quite strong. There is a $1000 account minimum requirement, however. You can also avail a free robo advisory service. Overall, an excellent option.
Fidelity – Fidelity is an industry giant with over $2 trillion in assets under management. It has great customer service and extensive research/learning information. The trading fee is $4.95 and some ETFs/mutual funds are free. Certain mutual funds purchase requires an account minimum of $2500. Overall, a well-known brand and a decent option.
E-Trade – This website is one of the most popular online brokers in the US. They have excellent tools for research and learning. Their commission structure is also tiered to favor higher frequency traders. Investment selection is one of the largest in the industry. Account minimum is $500 and per trade fee is $6.95. Its mobile app and trading platform are very well-designed.
Merrill Edge – No account minimum. Very good research material. Merrill Edge has no account minimum and a $6.95 trading fee. If you are a Bank of America customer, you may get some free trades as well.