Should I Just Go With the Cheapest Broker?

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Many of the advertisements that you'll see for discount brokers focus on the price per trade (or the "commission"). While choosing the brokerage that provides the absolute lowest price per trade might be attractive -- and might even make sense -- it is possible that you'll find that there is some trade-off between service and price. (You've probably discovered that once or twice before in your life.)

Online brokerages can be put into three general categories:

Super-cheap brokers that charge from $4 to $12 per trade. Best used by those who plan on trading very frequently, but satisfactory for buy-and-hold investors as well.
Mid-priced brokers that charge between $12 and $20 per trade. These brokers justify slightly higher prices with more well-known brand names, and possibly additional services.
High-priced brokers that charge more than $20 per trade, typically around $29.95 per trade. (They think $30 trades sound too high, so they knock off a nickel -- but we're not fooled.)

The trading costs aren't the only ones to consider when shopping for a discount broker. There are also other fees you should factor in.

If you're only making five, six, 10, even 20 trades in a year, the difference between paying $7 per trade and $20 per trade isn't significant. Better to make customer service a priority and not sweat about whether you've made the right choice.

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Comments from our Foolish Readers

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Report this Comment On November 04, 2008, at 4:01 PM, mcob1 wrote:

for the last hour and a half, I have been unable to access my account with zecco. they will not answer the phone either. are they bankrupt? do I still own the stocks in which I have 100% equity? or is it just lazy it?
mcob
Report this Comment On November 10, 2008, at 9:18 PM, foolishn00b wrote:

I'm not sure I follow the logic in the last paragraph... Using the extreme ends of the spectrum in that paragraph, 20 trades at $20 per trade is $400... 20 trades at $7 is $140. Is the author implying that $260 is insignificant? How much is the author assuming is originally being invested?