Fidelity vs. Robinhood: Low-Cost Online Brokers

Are you ready to take the first step to becoming an investor by investing in individual stocks or funds? Awesome! But before you begin, you'll have to open a brokerage account to start placing trades to buy investments. Fidelity and Robinhood are two well-known discount brokers that process thousands of trades each day. Here's how they compare for investors.

Trading costs and commissions

Fidelity and Robinhood are different in that Fidelity offers access to more investments, but charges a fee for each transaction. Robinhood is limited to a few types of investments, but it doesn't charge a commission on each trade.

Data sources: Company websites.

Although it may seem that Robinhood is a clear-cut winner for stock and ETF trades, it's not so simple. Fidelity offers no-transaction-fee (NTF) trades on some ETFs and mutual funds that may give it the edge for some investors.

Commission-free ETFs and NTF Funds

So-called NTF mutual funds and commission-free ETFs are investments that brokerage customers can buy or sell without paying a fee to do so. Although Fidelity charges a commission on most trades, its clients can buy and sell more than 3,700 ETFs and mutual funds without paying a transaction fee.

Data sources: Company websites.

Robinhood doesn't charge any trading commissions, so all ETFs are commission-free on its platform. However, the brokerage doesn't offer any mutual fund investments, which may be a disadvantage for some. Fidelity offers the ability to trade iShares and Fidelity ETFs for free, in addition to more than 3,600 no-transaction-fee mutual funds. It's possible that a fund-only investor could buy their favorite ETFs and mutual funds through Fidelity and pay nothing in transaction fees to do so.

Account minimums

Fidelity has a $2,500 minimum account requirement, which may make it less attractive for investors who are just starting out. Robinhood's no-minimum account requirement means that you can open an account with just $1 if you wanted to. In all reality, for serious investors, the difference isn't really all that large. After all, you still need enough money to place a trade for a share of a stock or an ETF through Robinhood, many of which trade for more than $1 per share.

Some brokers have special offers that require different minimum deposits to qualify. Check out the current special offers for IRA accounts, as well as those for general brokerage accounts.

Trading platform

At The Motley Fool, we prefer to make long-term investments in companies that we think will be good investments for years and decades. Therefore, we don't spend all that much time trading, and really don't care about the quality of a trading platform.

Depending on your needs, the trading platforms offered by Fidelity and Robinhood could suit investors with a long-term perspective. We should caution, however, that Robinhood's platform is only available in the form of a mobile app, which rules out investors who do not own a smartphone or tablet, or who do not want to use a mobile device to make trades.

Image source: Getty Images.

International stocks and ADRs

One of Fidelity's biggest advantages is its ability to place trades on stock exchanges around the world. Investors can place trades on markets in 25 countries through their Fidelity brokerage account. Fidelity also allows for trading in American-listed American depositary receipts (ADRs), which are available for many foreign large caps. Note, though, that trading commissions are higher for trades placed on foreign markets, and vary by stock market.

Robinhood does not offer trading on foreign stock markets, or in over-the-counter stocks, which includes many ADRs. It does allow trading in foreign companies that are domiciled in Canada and Israel and trade above $5.00 per share provided they have a listing on U.S. markets.

Research quality and tools

One of the advantages of an online brokerage account is that you can research your investments on the same website you use for trading. Fidelity offers access to screening tools, access to analyst recommendations from more than 100 firms, and third-party research from companies including Thomson Reuters and Morningstar, among others.

By comparison, Robinhood doesn't offer much in the way of research. A simplistic brokerage by design, one of the trade-offs of paying nothing in commissions is that you won't get access to many research tools.

Mobile app

Here's how each brokers' users and clients rated their mobile capabilities on iOS and Android (as of Dec. 5, 2016).

Data sources: Relevant app stores.

The right broker for you

Given the sharp differences in trading commissions, research capabilities, and access to funds and foreign markets, the choice between Fidelity and Robinhood really comes down to your individual needs. Long-term investors may find either brokerage preferable to the other, depending on how frequently they trade, or what they want to trade. With that said, The Motley Fool does not endorse any particular broker. Visit Fool.com's Broker Center, which compares and contrasts the features of several of the leading online discount brokerage firms.