Choosing a broker can be difficult due to the wide variety of choices available. While competition has pushed many brokers to offer their services on a no-fee basis for commonly traded assets, investors evaluating these platforms will still find major differences in the usability, trading technology, account features, and so on. Wading through all this can be a daunting task, so we've done much of the work for you. We put these U.S.-based brokers through a comprehensive review process that included hands-on research to determine the best trading platforms in the industry.
Best Online Brokerage Accounts and Trading Platforms:
Fidelity Investments: Best Overall
- Account Minimum: $0
- Fees: $0 for stock/ETF trades, $0 plus $0.65/contract for options trade
Why We Chose It
Fidelity is on a multi-year run as our best overall brokerage account due to its client-focused approach. Other brokers are closing the gap, but Fidelity remains our overall pick for investors. In addition to refusing payment for order flow, Fidelity keeps costs low, provides exceptional tools to help investors manage and analyze their portfolios, and continually improves its platforms to make things easier for investors and traders. One example of this is Fidelity's cash sweep of uninvested cash into money market funds, which gives clients another source of modest returns in their portfolios. Fidelity also has excellent order execution and shares the revenue from the stock loan program back to clients. These features, along with Fidelity's commitment to lowering costs for customers while improving returns, are the key reasons it continues to be our selection for the best overall online brokerage.
-
86.17% of Fidelity orders are executed at a price better than the national best bid or offer
-
Robust research and asset scanners
-
Cash is automatically swept into a money market fund
-
Rich educational offerings
-
You may need to use Fidelity’s web platform and Active Trader Pro to access the tools and research you require
-
Non-U.S. citizens or residents cannot open an account
TD Ameritrade: Best for Beginners
- Account Minimum: $0
- Fees: Free stock, ETF, and per-leg options trading commissions. $0.65 per options contract.
Why We Chose It
TD Ameritrade’s strength in investor education flows naturally to TDA being one of the smoothest introductions to the market for new investors. There are, of course, brokers that do it cheaper or flashier, but TD Ameritrade has the resources, range of offerings, and the support that will help new investors become better over the long-term. Major factors in choosing the TD Ameritrade brokerage account include the expanded learning pathways covering everything from beginning to invest to advanced trading, and the ability to paper trade on the platform without making any commitment. TD Ameritrade makes a very compelling case for being the brokerage account that new investors choose because it manages to be a comprehensive and robust platform without being overwhelming.
-
Extensive education section with learning pathways designed with beginners in mind
-
Dashboard on mobile and web where clients can quickly access account details
-
A range of trading platforms and investment selections for all types of investors and traders
-
You may have to use multiple platforms to utilize your preferred tools
-
Wide menu of account types can make choosing the right one challenging
-
You earn a tiny rate of interest on uninvested cash unless you move cash into money market funds
TD Ameritrade: Best Mobile App
- Account Minimum: $0
- Fees: Free stock, ETF, and per-leg options trading commissions. $0.65 per options contract.
Why We Chose It
TD Ameritrade has two apps that together form the best overall mobile app offering. The thinkorswim mobile app is designed to make it easy for traders to manage existing positions and open new ones. The mobile app's workflow is intuitive and powerful enough to use as the primary trading platfom—potentially bringing about a generation of app-only traders who never touch the more robust, downloadable versions. You may find the standard TD Ameritrade app superior to the full website as it streamlines the entire experience to the necessities while nesting all the other functions into a convenient, mobile package.
-
Mobile trading on TD Ameritrade mobile is more streamlined than the website
-
Trading from charts on mobile is simple in both apps
-
Dual apps let you choose the one that best fits your needs
-
Some tools found only on one platform
-
Wide menu of account types can make choosing the right one challenging
-
No fractional shares
tastyworks: Best Broker for Options
- Account Minimum: $0
- Fees: $0.00 stock trades, $1.00 to open options trades $0.00 to close
Why We Chose It
Tastyworks remains very competitive on price when it comes to trading options contracts. Still, what makes it our pick as the best broker for options traders are the flexible tools, educational content, and intuitive platforms. Tastyworks isn't the broker you start options trading on—it is the one you end up choosing once you've decided options trading is all you want to do. Tastyworks is optimized for this task in a way that few other brokers are. Options traders will find all the tools and analysis they need during trading sessions, and they can spend their downtime consuming options-related content to get ready for the next session.
-
All the options tools you need
-
Charting is tweaked to options, allowing you to analyze the risk profiles of the combined position
-
Fantastic library of original, options focused content
-
If you are coming to tastyworks to trade something other than options, you are in the wrong place
-
There is no fixed income trading (outside of ETFs that contain bonds)
-
Additional portfolio analysis requires setting up an account with the Quiet Foundation, also part of the tastytrade empire
Fidelity: Best Broker for Low Costs
- Account Minimum: $0
- Fees: $0 for stock/ETF trades, $0 plus $0.65/contract for options trade
Why We Chose It
Over the last year, we have re-evaluated what it means to be our best low-cost online brokerage. There are online brokers that cost next to nothing to trade on. That was all it took to walk away with this category in the past, even if a broker had a limited range of assets, a lack of useful tools, or a weak trading platform—or potentially all three, provided the price was cheap enough. We've adjusted our scoring to look for low-cost in comparison to the value delivered. While this approach to the data ended up with Fidelity (our best overall broker) on top, the winning factors over close competitors were the cash management options on idle cash and the excellent portfolio analysis tools that consolidate outside accounts. If you don't trade a large number of options and you don’t require futures or cryptocurrency, then Fidelity offers the most bang for your buck.
-
Low costs overall and a lack of many common fees
-
Strong account management options, including a sweep program into money market funds
-
Transparent pricing disclosure
-
Excellent execution quality
-
No future, commodities, or cryptocurrency
-
Only available to U.S. residents
-
A high fee ($32.95) for live broker assistance
Interactive Brokers: Best for Advanced Traders
- Account Minimum: $0
- Fees: Maximum $0.005 per share for Pro platform or 1% of trade value, $0 for IBKR Lite
Why We Chose It
Interactive Brokers (IBKR) remains our top pick for advanced day traders, continuing a multi-year run. In this category, we assume advanced day traders are willing to bring third-party solutions to make up for any gaps in backtesting and automation in exchange for IBKR's international exchanges, an extensive selection of stocks on the easy-to-borrow list, and incredibly low margin rates. Advanced cryptocurrency-focused day traders are now able to engage in direct coin trading as of April 2022, and everyone else will find that Interactive Brokers has all the assets, reach, and tools they need, along with very attractive margin rates. Interactive Brokers is one of the best trading platforms overall, so it is a natural fit for advanced traders.
-
Superior order execution
-
Contingent orders for every conceivable situation
-
Low margin interest rates
-
Cryptocurrency joins a long list of tradable assets
-
IBKR's SmartRouter not available to IBKR Lite clients
-
TWS can take some time to learn
-
No backtesting of custom trading algorithms or automated trading
Interactive Brokers: Best for International Trading
- Account Minimum: $0
- Fees: Maximum $0.005 per share for Pro platform or 1% of trade value, $0 for IBKR Lite
Why We Chose It
Interactive Brokers is in no danger of being unseated as our pick for best online broker for international trading. Interactive Brokers dominates the scoring in this category simply by virtue of its access to 150- markets in 33 countries—all accessible through a single account. What's more, Interactive Broker gives you the ability to trade 23 currencies in 115 different pairs in addition to the broker’s robust order selection and trading tools. The breadth and depth combine to enable traders to set up positions across markets and asset classes in a way that no other broker can currently match. If you are interested in international trading, Interactive Brokers gives you one of the best brokerage accounts available for tapping global markets.
-
Interactive Brokers is unparalleled in its market reach and asset variety
-
Trader Workstation (TWS) is a powerful tool with a high level of customization
-
The direct access to exchanges worldwide allows for 24-hour trading
-
International trading on IBKR works best through TWS, which can be intimidating for non-traders
-
Interactive Brokers fee-based pricing structure is tiered and can be confusing (although the fees are modest)
Charles Schwab: Best for ETFs
- Account Minimum: $0
- Fees: Free stock and ETF trading, $0.65 per options contract
Why We Chose It
Charles Schwab is a full-service investment firm that ranks highly across many of our scoring categories. Schwab frequently ranks in the top three throughout our categories, only to be edged out by slightly more focused offerings. Still, when it comes to ETFs, Schwab continues to be our top pick. This is largely on the strength of its ETF screener combined with the general quality of its overall offering, including education around ETF investing and portfolio analysis tools for everyday investors. Schwab makes the process of investing in ETFs simple while still providing excellent research and multi-criteria screening for investors who want that depth prior to making a decision. All of these factors combine to make Charles Schwab the best brokerage account for ETF investors.
-
StreetSmart Edge ETF screener has 150+ screening criteria
-
The StreetSmart Edge platform is customizable and robust
-
Schwab is an excellent broker overall beyond the ETF specific functionality
-
To get the best ETF screener, investors need to work through StreetSmart Edge
-
Outside of ETFs, Schwab can be a bit pricey on options, and futures are traded through a separate platform—something to keep in mind if you intend to trade in those assets
Final Verdict
Ultimately, choosing the best brokerage platform is about who you are as an investor now and what type of investor you aspire to be in the future. Once you have answered these fundamental questions, our ranking can help you narrow down the field. For example, if you are just starting out as an aspiring options trader, you may be better served by reviewing our picks for options traders rather than going through the general best for beginners picks. As you grow as an investor, however, you may also find that your goals and approach to the market have changed—maybe you desire a more robust platform with more assets and exchanges, or maybe you are looking to simplify things and take a more passive approach. The best thing about the high level of competition in the brokerage space is the number of brokers with solutions to serve your needs, no matter how those change over time.
| Compare the Best Online Brokers | ||||
|---|---|---|---|---|
| Company | Category | Investopedia Rating | Account Minimum | Basic Fee |
| Fidelity Investments | Best Overall and Best for Low Costs | 4.8 | $0 | $0 for stock/ETF trades, $0 plus $0.65/contract for options trade |
| TD Ameritrade | Best for Beginners and Best Mobile App | 4.5 | $0 | $0 for stock/ETF trades, $0 plus $0.65/contract for options trade |
| Tastyworks | Best for Options | 3.8 | $0 | $0 stock/ETF trades, $1.00 to open options trades and $0 to close |
| Interactive Brokers | Best for Advanced Traders and Best for International Trading | 4.6 | $0 | $0 for IBKR Lite, Maximum $0.005 per share for Pro platform or 1% of trade value |
| Charles Schwab | Best for ETFs | 4.8 | $0 | $0 for stock/ETF trades, $0 plus $0.65/contract for options trade |
How Should You Choose a Brokerage Account?
When choosing an online broker, you have to think about your immediate needs as an investor or trader. If you are a beginner, you may need a broker who has great educational material about the stock market and other financial markets. This is one of the key reasons TD Ameritrade is our top pick for beginners. A number of brokers also allow for paper trading prior to funding an account, giving you an opportunity to learn the platform, sample the available assets, and test out the trading experience without risking real capital.
What Is an Online Brokerage Account and How Does it Work?
A brokerage account is a financial account similar in function to the accounts you have with a bank. With a brokerage account, you deposit funds with an investment firm (the brokerage). This is usually done by a transfer from your existing bank account. Once funds are added to your brokerage account, you can put the money to work using the brokerage's trading platform to invest those funds in the market. The assets you buy with your cash can be anything offered by that brokerage, including stocks, bonds, ETFs, and even cryptocurrency.
Your online brokerage account will display your holdings (the assets you've purchased) as well as your cash balance (your buying power). If you invest in something that gains in value, you can sell it and the profits will be deposited in your online brokerage account. From there, you can place another trade or even transfer the funds out to your regular bank account to use elsewhere. Some brokerage accounts even allow you to earn interest on your uninvested cash.
How Much Money Do You Need to Start Investing?
There is no longer a real minimum to start investing in the financial markets. With many brokers offering accounts with no required minimums and access to fractional shares, you can start investing with any amount of money. If you don't have a lot of money to invest, however, it will influence how you approach the market. Although you could invest $1 in fractional shares of a specific stock, the better approach with limited capital is to use ETFs. Index tracking ETFs, for example, offer greater diversification for your dollar than a single company stock because every share (and fractional share) of the ETF replicates an index made up of many companies in many different industries. You could also consider using options to leverage your dollars with a directional bet on the market or a specific stock, but this is a strategy best reserved for risk capital—not the whole of your limited investment capital.
When investing with small sums, consistency is the key to building wealth. If you can regularly put a set amount of money into the market—even $10 a week—you will be surprised at how quickly it begins to grow. This consistency also helps to smooth market effects, as you will be buying dips and peaks as the market goes up and down.
Can You Invest With a Small Amount of Money?
Many online brokers allow for small minimum deposits which can be a great alternative for those with limited funds. Account minimums (if any) are displayed at the top of our reviews, as well as in our selection of the best platforms for different types of investors. If you are looking for more general guidance on investing with limited capital, check out our article on smart investing on a small budget.
Do Brokers Offer Mobile Platforms?
Some online brokers have incredible mobile apps delivering nearly all the features that their desktop counterparts do. Options traders, for example, will find the tastyworks app to be a streamlined version of the tastyworks desktop platform. TD Ameritrade customers can pick between the more robust thinkorswim mobile app aimed at traders or the standard TD Ameritrade app for less active investors, with the features of each adjusted for the intended user.
Can you lose money in a brokerage account?
Yes, you can. It is a reality of the market that no reward comes without risk. You can lose money buying a bad investment, but you can also lose by buying a good investment at the wrong time. When it comes to the financial markets, there are endless possibilities for making and losing money. Unless all the funds in your brokerage account are sitting in uninvested cash, there is a risk you will lose money. Another way of looking at that, however, is that a brokerage account sitting full of uninvested cash isn't at risk of making any money either. You can use strategies like asset allocation and diversification to reduce the risk of you losing money, but you will never fully eliminate it without also eliminating your chances of making a decent return.
Can I buy stocks without a broker?
Yes, you can actually buy stocks without a broker, but it is not a common approach these days. Some companies still offer direct stock purchase plans that allow you to buy shares directly from the company. Companies administer these plans according to internal rules, and some are only open to company employees. You need to contact companies to find out whether they offer a direct stock purchase plan and what the terms and conditions are. These plans initially helped investors avoid brokerage fees, but the rise of online discount brokers with zero fees has removed this barrier, making the direct stock purchase plan somewhat of a relic.
The Difference Between Investing and Trading
Another important thing to consider is the distinction between investing and trading. When people talk about investing they generally mean buying assets to hold for a long period of time. The goal of investing is to gradually build wealth and reach your retirement goals. Conversely, trading involves short-term strategies that maximize returns on a short-term basis, such as daily or monthly. Trading is generally considered riskier than investing.
All these factors are worth considering before choosing an online broker. Do you want to trade or invest? Do you want a great mobile app to check your portfolio wherever you are? What types of assets are you looking to invest in? Answering these questions is not always easy. For more support on how to choose a broker, you can check out our guide to choosing a stock broker. Once you've made a decision on a broker, you can also check out our guide to opening a brokerage account.
Methodology
Investopedia is dedicated to providing investors with unbiased, comprehensive reviews and ratings of online brokers. Our reviews are the result of months of evaluating all aspects of an online broker’s platform, including the user experience, the quality of trade executions, the products available on its platforms, costs and fees, security, the mobile experience and customer service. We established a rating scale based on our criteria, collecting thousands of data points that we weighed into our star-scoring system.
0 comments:
Post a Comment