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Online Brokers: 5 Keys to Picking the Best One for You

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Online brokers have opened up the investment world to ordinary investors, and they've made it much easier for anyone to follow through on their dreams of making money in the stock market. But given how many online brokers there are to choose from, it's important to know how to pick the best one for you. Here are five things you should keep in mind as you consider how to choose from among all the online brokers out there.

1. Pay the right price.
Most online brokers have cut their commission rates sharply over the years, with most major online brokers offering stock trades for $10 or less. If you buy and sell stocks often, the amount you pay in commissions can make up a huge portion of your overall investing costs. On the other hand, those who trade infrequently will find that the difference of $1 or $2 in per-trade commissions isn't necessarily the most important factor in choosing among online brokers.

Also, keep your eyes open beyond stock commissions for other fees and costs. Some online brokers charge annual fees to all accounts, as well as inactivity or minimum-balance fees to certain accountholders. Other costs include custodial fees for IRAs and costs for wire transfers and other money-transfer services. Make sure you consider all of the costs you'll bear for your online brokerage account.

2. Get the best service.
Every investor has different needs and wants from online brokers, but you shouldn't settle for less than the best service you can get. Online brokers rely on their websites, so you should choose one that offers an interface you're comfortable with and the resources you need to invest well. The best online brokers offer a variety of research, investing tools, and live customer support to help you make your money work as hard as it can for you.

3. Get access to the investments you want.
All online brokers will give you basic access to the stock market. But if you want different investments, you'll need to check to make sure your broker will make them available. Many online brokers offer mutual funds through your brokerage account, although some of them charge fees that you wouldn't have to pay if you went directly through the mutual-fund provider. In addition, some online brokers have partnerships with exchange-traded fund providers to offer ETF trading at no commission.

Increasingly, online brokers also offer access to more sophisticated investments. Individual bonds, options, futures contracts, and foreign exchange are just a few of the more exotic markets that you can get access to if you want them for part of your diversified investment strategy.

4. Get paid while you wait.
Most investors keep some cash on hand, ready to invest when a bargain opportunity strikes. But it's important not to let that free cash sit idle. Most online brokers offer ways to let your account balance bear interest, and the better the rate, the better your return while you wait for the right buying opportunity to arise. Right now, with rates so low, expecting big returns from online brokers is unrealistic. But your broker should still do something to make your money work as hard as it can for you.

5. Make sure you have crash protection.
The biggest challenge with online brokers is that when the market gets jittery, everyone floods onto their websites at the same time. You don't want to be stuck at the worst possible time without being able to get access. Reviews of online brokers include comments about availability at times of peak volume, so look at them to make sure you'll get the performance you need when you need it. In addition, look to see what alternatives your preferred online brokers have to Internet-based trading and account access. That way, you'll be sure that whether a problem is on your end or your broker's end, you'll still be able to invest the way you want.

Choosing from all the online brokers available to you can seem like a huge task. But if you focus on these five key areas, you'll find an online broker that's the best for you.

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Dan Caplinger

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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