How The Major Online Brokers Stack Up
I’ve had an online stock trading account since I was 13 years old and I’ve used at least a dozen of the best online stock trading platforms. I’ve gained a few “learning experiences” from managing my own account and working as a proprietary day trader in Chicago for several years. I used that experience to dive into the best online trading platforms here.
Table of Contents
- 1 The Simple Dollar’s Top Picks
- 2 What Matters When You Trade Stocks on Your Own?
- 3 What Makes a Great Online Broker?
- 4 Analysis of the Best Online Brokers
- 5 Choosing the Best Online Brokerage Accounts
- 6 A Valuable Lesson at 14
- 7 Becoming a Day Trader
- 8 Recap: Best Online Brokerages
The Simple Dollar’s Top Picks
Here are the 4 best online brokerage accounts for 2015:
- OptionsHouse – Best Discount Broker (also Best Options Broker)
- E*Trade – Best Trader Resources
- Scottrade – Best Support and Service
- TD Ameritrade – Best For Developing Traders
What Matters When You Trade Stocks on Your Own?
Managing your own money can be a stressful endeavor. To minimize this, and to minimize information overload that tends to come from watching the markets 24/7, there are a few must haves that I look for in an online broker.
- Clean interface. When I trade, I want to be able to easily find my order entry ticket. I don’t want it buried under a number of drop downs. This interface should have intuitive access to see your balance, available cash, positions with real time P/L and all be easily navigated.
- Quick access to basic charting. A chart tells me where the stock has been recently. I don’t trade minute to minute anymore, so I don’t need complex tools like stochastics or retracement lines. All that’s important is that I have a basic chart on a yearly, monthly, weekly, daily and intra day time period. I use a chart to see current price relative to those time periods, mainly to avoid purchasing at a bad price.
- Low fees. Self explanatory.
There are over 50 online brokerages where you can open an account. Beyond the three must haves above, best online brokerage accounts aren’t just for trading stocks. Sure, many of them started as online stock trading accounts, but now they’re full-fledged trading, saving, investing, retirement planning, and banking machines.
This industry is more complex than the average person thinks. You shouldn’t just pick any online broker and sign up for an account. The best online broker for one person is often completely different for the next person. Use this resource as a guide to your decision process. Figure out what features are best for you, and make your selection.
What Makes a Great Online Broker?
I analyzed a number of elements to come to my decision on which brokers are the best. Later in this post, I provide full details on how I selected the best online brokerages.
When you take all the features, resources, trading platforms, and technology into account (while also considering every type of trader), the full-service brokers, like E*Trade and TD Ameritrade are the best for the largest number of people.
For those simply looking to make cheap trades, I would recommend going with OptionsHouse.
If you’re a very advanced trader, high-volume trader, or a professional who manages money, I recommend going with Interactive Brokers. However, I didn’t include Interactive Brokers on my list because they’re best for a very small group of traders and the platform is very complex.
Top Qualities of Standout Online Trading Platforms
- Quality trading tools and technology
- Multiple trading platforms for all levels of traders
- Excellent mobile trading features
- Solid navigation that displays the relevant information where you want it
- Quality educational resources and research for trader development
There’s more to selecting an online broker than price. You have to consider the resources you’re getting for the cost you pay per trade.
For example, my colleague, who is also an ex-trader, likes to use a combination of stock and options trade in his longer-term trading. He recently switched over to Fidelity because he really liked the cash management features, but was very disappointed by complex order entry, sub-par options execution and frustrating navigation. He’s currently making the switch to one of the brokers I profile here.
Analysis of the Best Online Brokers
OptionsHouse – Best Discount Broker
When it comes to getting a deal on a stock or options trade, it’s tough to beat OptionsHouse. Along with the low costs and fees, you’ll also have access to proprietary tools and technology. OptionsHouse isn’t a “full-service” broker like TD Ameritrade, which means you won’t find the same comprehensive financial resources and access to every investment product. OptionsHouse is good at what they do — providing very affordable trading prices, low margin rates, and unique tools for stock and options traders.
OptionsHouse Costs and Fees
Stock Trade: $4.95 for new traders, $3.95 for current traders
Options Trade: $4.95
Options Contract: $0.50
Mutual Funds Fee (Load): $9.95
Mutual Funds Fee (No-Load): $9.95
Futures Contract Cost: Not Offered
Margin Rates: 1.5%-5.0%
Minimum Deposit: $0
4 Reasons to Sign Up for OptionsHouse
Very Low Costs and Fees
If you compare OptionsHouse to the other best online stock trading firms, the cost to make a trade with TD Ameritrade and E*Trade will be about double. Simply put, if you’re looking for the best discount broker, OptionsHouse is your choice. The only other broker that’s cheaper is Interactive Brokers, but they require a $10,000 minimum deposit and their software is built for advanced traders.
Customizable Web-Based Trading Platform
The OptionsHouse web-based platform is completely customizable, meaning you can remove or add different components, minimize sections, and adjust the entire home screen to your preferences. One cool feature is that you can click on any of the components on your home screen and detach it so it shows up in a separate window. For example, if you have two monitors, or just want their charts opened separately, you can have your trade execution tools in one spot and your charts in another location.
Advanced Options Trading Tools
OptionsHouse is one of the three best options brokers (the others are optionsXpress and tradeMONSTER). Not only is OptionsHouse the cheapest for trading options, but they also provide you with an account view that enables you to look at an options calendar, options chains, and all kinds of option spreads. There are several proprietary tools that help you gain insight into your risk or exposure in addition to the quality options trading tools.
For options traders and, more specifically, high-frequency traders, OptionsHouse is a solid choice because you can fire off trades with the quick-order entry ticket. If you simply type in a quote, you can instantly add a stock or option leg to a trade. Navigation is simple and everything is laid out to ensure you can move around your account efficiently while making options trades with ease.
2 Reasons to Avoid OptionsHouse
Lacking Access to Several Investment Products
If you’re someone who’s interested in trading a variety of markets or growing your trading knowledge, you probably shouldn’t open an account with OptionsHouse. As the name implies, this online brokerage is best for options traders and people who want to make cheap trades. You won’t be able to trade futures, forex, or international markets. This isn’t a big deal if you’re just looking to trade options or trade stocks for low prices.
Not a Full-Service Broker
Unlike TD Ameritrade, E*Trade, Scottrade, and other major brokers, OptionsHouse is built mostly for trading and not much else. You won’t have access to banking or comprehensive financial services, so expect to have your money split between multiple accounts versus keeping it all in one place.
OptionsHouse Is Best For:
- Options Traders
- High-Frequency Traders
- Deal Seekers
E*Trade – Best Trader Resources
E*Trade is right there with TD Ameritrade and Scottrade if you’re looking for the all-around best online brokerage. What’s interesting about this comparison is that E*Trade excels in several different areas compared to TD Ameritrade and Scottrade, but also has many similar offerings. E*Trade’s web-based platform is incredibly advanced and a breeze to use, as is their mobile app. However, you have to pay for these features because E*Trade is just as pricey as TD Ameritrade and requires a $500 deposit to open an account (TD Ameritrade is free).
E*Trade Costs and Fees
Stock Trade: $9.99
Options Trade: $9.99
Options Contract: $0.75
Mutual Funds Fee (Load): Varies by fund
Mutual Funds Fee (No-Load): $19.99
Futures Contract Cost: $2.99
Margin Rates: 4.14%-8.14%
Minimum Deposit: $500
5 Reasons to Sign Up for E*Trade
The Best Mobile Trading App
E*Trade’s mobile app is a level above the others on the market. It’s honestly hard to tell the difference between the app and the standard trading platform you would access on a computer. That’s saying a lot because the web-based platform is also one of the best. You get access to CNBC videos, real-time quotes, live market news, and more. You can also conveniently deposit checks directly into your trading account.
Online Trader Community
One of the standout features E*Trade offers is a trader community that enables you to chat with other traders. This is beneficial because you can gauge how others are reacting to the market, see the opinions of other traders, and see how actively traded certain stocks are. It’s a cool element that adds a little something extra, and you won’t find it offered elsewhere.
Another quick tip: It’s a good idea to follow market sentiment and do the opposite of what other traders are doing, not follow the crowd. If everyone is doing the same thing, the likelihood of a big group of people caught in the same trading position is high. That means when the market turns, everyone is trying to get out of their position and you’re the one taking the other side of the trade so you can capitalize on everyone else’s mistake.
Access to Every Investment Product
It’s rare for any of the best online stock trading brokers to provide access to every investment opportunity, but E*Trade has no limitations. In addition to the standard of stocks and options, you’ll have access to bonds, mutual funds, ETFs, forex, futures, pink sheet stocks, and international markets. E*Trade is a smart choice for people who want to diversify their investment portfolio and for those who have some market experience.
Outstanding Financial Tools
With an E*Trade account, you’ll have access to a debit card and unlimited free ATM refunds at any bank or ATM across the country. E*Trade used to offer a credit card, but it was discontinued in late 2013. (If you’re looking for a great credit card, check out my post on the best rewards credit cards.) E*Trade offers a variety of savings plans for all walks of life, including college savings plans, IRAs, retirement planning, and small-business tools.
Superb Web-Based Platform
E*Trade has something called E*Trade 360, which enables you to view everything in your account on one page and take action by making trades. It’s one of the few web-based platforms where you have everything you need on one screen. If you don’t like the default layout, you can drag and drop the various components to arrange the home screen to your liking. Page elements can be added and deleted as you wish. The ease and simplicity of making a trade from the same screen where you’re conducting your research can’t be understated. With some brokers, placing a trade takes two to three clicks just to get to the right area.
2 Reasons to Avoid E*Trade
No Virtual Trading
I think it’s especially important for new traders to be able to practice trading real markets without investing any money. One major downfall of E*Trade is that they don’t offer virtual trading on their web platform or on their mobile app. So, you can’t test out E*Trade’s tools prior to opening an account, and you also can’t test your own strategies with fake money even if you have an account.
High Costs and Fees
Like TD Ameritrade, E*Trade will cost you a bit more than the other top online brokerages. Also like TD Ameritrade, you get what you pay for. If you don’t trade frequently, the $9.99 fee per stock or options trade might be worth it for all the resources you have access to. Not that all of us have $10,000 lying around, but if you deposit that much into your new E*Trade account, they’ll let you trade for free for 60 days.
E*Trade Is Best For:
- Low-Frequency Traders
- Long-Term Investors
- Research-Based Traders
- Multiple Market Traders
Scottrade – Best Support and Service
For years, Scottrade has been known as the best online brokerage for customer service. Scottrade doesn’t just let you open an account and ignore you. They thrive on building relationships with their clients, which is pretty rare these days. Scottrade is behind the times with some of their features, but they also don’t charge as much money per trade as the other full-service brokerages. If you’re a new trader or you just like being taken care of regardless of how much money is in your account, I don’t think you can do better than Scottrade.
Scottrade Costs and Fees
Stock Trade: $7
Options Trade: $7
Options Contract: $1.25
Mutual Funds Fee (Load): $0 to buy, $17 to sell
Mutual Funds Fee (No-Load): $17
Futures Contract Cost: N/A
Margin Rates: 5.75%-7.5%
Minimum Deposit: $2,500 (recently updated), $0 for retirement account
4 Reasons to Sign Up for Scottrade
Industry-Leading Customer Service
Year after year, Scottrade is on Fortune magazine’s list of 100 best companies to work for. In fact, Scottrade has been on that list for six straight years. So what does that have to do with customer service? When a company treats their employees the right way, those employees treat customers the right way. In a J.D. Power and Associates self-directed investor study, Scottrade also ranked number one for interaction, account information, trading charges and fees, and overall satisfaction. (This study only included larger, full-service brokers that offer other services beyond trading.)
Scottrade has over 500 local branches where you can walk in and talk to someone face-to-face. There’s a live chat feature on their website and you can even reach out to them via social media, where they are very active.
Access to Long-Term Investment Vehicles
The only markets you can’t trade with Scottrade are forex and futures markets. So beyond the basics, Scottrade is another full-service broker that offers banking services, retirement planning, savings plans, and more. It’s not strictly about making trades but, if it was, Scottrade’s prices are affordable in comparison to other full-service brokers.
Intuitive Web-Based Platform
The web-based platform has a fully customizable home page that enables you to drag, drop, and rearrange the various components of the page to your preferences. At the the bottom of every page, there’s an intuitive “Quick Trade Bar” that enables you to conduct research and make trades quickly. The bar even detaches from its location so you can place a quick trade even if you’re not on your account home page. This comes in handy if you’re on a third-party website and you read about some news that’s impacting the market — you can quickly get in or out of a position.
Affordable for a Full-Service Broker
Compared to TD Ameritrade and E*Trade, Scottrade’s trading commissions and fees are nearly $3 cheaper per trade. That can certainly add up depending on the volume you plan on trading. For investors who want the amenities of a full-service broker, but don’t want to be paying top dollar to execute trades each week, your money can go further with Scottrade.
The Reason to Avoid Scottrade
Not Overly Innovative
Scottrade has the foundation in place to rise above the other top online stock brokers, but they fall short when it comes to innovation. There are a few instances where major improvements can be made. The mobile app looks like it was created five years ago. It’s difficult to navigate, very slow, and hard to trust for mobile trading. The app does include an area where you can research news, statistics, opinions from analysts, and more. The components are there for a solid mobile app, but it just hasn’t come together yet.
If you compare Scottrade to the other brokers, they’re also behind the times in terms of technology. It’s rare for Scottrade to develop any kind of technology before the other best online brokerages. They lead the industry with support and service, and then they follow in terms of technology.
Scottrade Is Best For:
- Long-Term Investors
- Research-Based Traders
TD Ameritrade – Best For Developing Traders
I’ve actually had a TD Ameritrade account for over 15 years now. Back in the day, it was TD Waterhouse and then it merged with Ameritrade to form one company. TD Ameritrade is one of the all-around best online brokers because any level of trader can be satisfied here. While the costs and fees are on the high end of the industry, you get access to comprehensive research materials (both third-party and in-house) as well as education resources that can help you advance as a trader.
TD Ameritrade Costs and Fees
Stock Trade: $9.99
Options Trade: $9.99
Options Contract: $0.75
Mutual Funds Fee (Load): $0
Mutual Funds Fee (No-Load): $49.99
Futures Contract Cost: $3.50
Margin Rates: 6.25%-8.75%
Minimum Deposit: $0
4 Reasons to Sign Up for TD Ameritrade
Industry-Leading Trading Platforms
TD Ameritrade has three different trading platforms to support all levels of traders. There’s the web-based platform that’s easy for beginners to get started with. The Trade Architect platform is well suited for more active traders. Then there’s the thinkorswim platform, which TD Ameritrade acquired in 2009. With thinkorswim, advanced traders can access a variety of markets, including futures markets.
TD Ameritrade clients have access to two apps — the TD Ameritrade Mobile app and the the TD Ameritrade Mobile Trader. The Mobile Trader app is set up to enable you to make trades on the go, just as you would with your normal account. You can also trade virtually with this app, which is a good way to test out your own effectiveness if you’re making trades during your lunch hour. The app also enables you to chat with other traders and watch CNBC broadcasts.
The first mobile app I mentioned is more basic, but it does have a unique feature built in worth noting. You take a photo of a product bar code while you shop, and the app finds the product’s publicly traded company. If there’s something you buy all the time that you suspect is the next big thing, you can find out who owns it.
Quick investment tip: Invest in products or services you use or buy yourself. You’ll know more about your investment and you’ll get much more enjoyment out of cheering for your favorite brands.
In-Depth Research and Market Commentary
When you get a quote for a stock or mutual fund, TD Ameritrade provides you with all the information you need, including a summary, charts, analyst reports, and earnings. It’s truly a fulfilling experience, especially if you like doing your own research. TD Ameritrade also provides free third-party research from other independent companies, so they’re not just feeding you their own opinions.
With TD Ameritrade, you can also open a Roth IRA or a traditional IRA, roll over a 401k, and get retirement guidance. As you can see, it’s more than just an online stock trading account.
The other benefit of investing your money with TD Ameritrade is that it’s also a bank. You can have all your finances in one account vs. multiple bank accounts. This makes transfers much easier. Plus, you can keep track of your finances better when everything is in one spot.
The Reason to Avoid TD Ameritrade
Higher-Than-Average Trading Costs and Fees
If you want cheaper trades, TD Ameritrade isn’t the best place to put your money. You’re better off with a broker like OptionsHouse. At $9.99 for a stock or options trade, TD Ameritrade is on the higher end of the industry. Like I said before, I believe the value is there. However, if you’re trading at a high frequency, it might make sense to look for another broker.
TD Ameritrade Is Best For:
- Traders of all levels
- Long-term investors
- Low-frequency traders
- Beginning traders who want to advance
Choosing the Best Online Brokerage Accounts
Choosing the best online brokers is no easy task. There’s so much variation in this industry from company to company, and then you have to factor in the type of trader or investor who’s opening the brokerage account.
Here’s how I got started:
- I conducted research to compile a list of every online broker.
- I narrowed the list down to just under 50 brokers by eliminating those that did not allow U.S. stock trading.
- I individually researched each broker, visited their websites, and analyzed rankings and reviews across the web.
- I concluded that there were 15 online stock brokers worth digging into.
My next step was to come up with measurable data to compare these brokers.
I had to be aware that comparing a full-service broker to a discount broker or options broker was going to be difficult. I didn’t want to penalize companies for specializing, but I also needed to reward the full-service firms for offering additional resources.
These were my next steps:
- I came up with 10 important categories of features to measure each company.
- Some of these features included costs and fees, access to investment products, research, education, trading technology, and financial resources.
- I compared each of the 15 online brokers across these features.
Once this comparison was complete, I was left with four of the best online brokers that excelled in specific areas. These four online brokerage firms cover the spectrum for anyone who would sign up for an investment account. I knew I could recommend one of them to a specific group of investors or traders.
Here are the final steps I took:
- I tested out each of the top four brokers (I actually tested several in the top 15) and simulated the trading experience.
- I analyzed the unmeasurable aspects of each broker that the data could not account for, like usability and functionality, and downloaded all the mobile apps.
- I looked for additional features unique to each online broker that I also did not capture in the data.
A Valuable Lesson at 14
When I was 13, I had about $1,000 worth of stock in a company called Superconductor Technologies, Inc. The company still exists today and trades under the ticker SCON.
This was the time of the first technology boom from 1999-2000. By the time I was 14, my $1,000 worth of SCON (I purchased 50 shares at $20/share) was sitting at $480/share and worth $24,000. The stock eventually went up to nearly double that and then crashed with the rest of the tech market. Being 14 years old and thinking this stock was going to go up forever, I rode the wave up and all the way back down — down to nothing.
Check out the chart of SCON below and feel my pain. You can see that the stock took two major spikes up and crashes back down (I was involved in the first one). Today, the company trades for under $3/share.
I tell this story because I learned three great lessons about stock trading:
- Stay disciplined
- Have a plan
- Entries AND exits matter
Some people liken online stock trading to gambling (this can be true if you have no clue what you’re doing), but it’s really all about risk and reward.
Staying disciplined can keep you from losing money and ensure you lock in your gains. By discipline, I mean picking your prices — where you get in and get out ahead of time — and sticking to them. Always risk less on the downside than you’re willing to make on the upside.
The good news about many of the best online brokerage accounts is that you can start by trading virtually before you risk your money. You can practice strategies and track your gains and losses without having to invest a dime using the same software the broker offers for real money.
By applying what you learn and maintaining discipline, you have the potential to earn a decent side income if you’re willing to invest the time.
Becoming a Day Trader
I’ve been told several times that “trading is the hardest way to make an easy living.” That’s the truth. The best traders in the world are extremely disciplined and always on top of the latest research and trends in the market. I worked with several of these people and witnessed it firsthand on a daily basis.
I spent just under three years trading S&P futures, oil markets, foreign currencies, and other markets as an employee of a day-trading firm. The same principles I learned from making that big $24,000 mistake in my teens carried over to that job. The amount of money I would make on my biggest winning days was significantly more in comparison to the amount I would lose on my worst losing days.
I’m telling you all of this because I don’t want you to sign up for one of the online brokers I’m recommending and lose a bunch of your money. If you’re interested in trading, I want you to find a way to build a substantial income on the side and grow your money slowly.
I eventually quit trading because it wasn’t my calling. Once I figured out what I wanted to do with my career, enduring the daily stress of watching money come and go just wasn’t worth the massive upside. However, I can say with confidence that trading was the greatest education I’ve ever received.
Now, I’m able to leverage my trading experience and knowledge of online trading to thoroughly review each of the best online brokers to help you set up the right account. The experience was well worth it.
Recap: Best Online Brokerages
My recommendation to most of you is to open an account with a full-service broker. There are different scenarios in which you should choose each of these brokers I reviewed.
If you’re a new trader looking to advance up the ranks and absorb knowledge but still want to make trades on one of the best trading platforms around, try TD Ameritrade.
If you’re simply looking to make cheap stock and options trades, open an account with OptionsHouse.
For those of you who want access to every investment product and a great mobile trading platform, go with E*Trade.
You should sign up with Scottrade if you put a high value on getting help, but you don’t want to pay $9.99 per trade.
I also wrote about the best IRA accounts where I explain the differences between traditional and Roth IRAs so you can see what your best options are.