From Wall Street bailouts and insider trading scandals to the flash crash and high-frequency trading, many ordinary people think investing in the financial markets is like playing a rigged game. If you want to stand a chance of keeping up with huge institutional investors, you need a broker on your side that can match up well with your particular investing style and give you the tools you need to succeed.
Many investors, however, don't look at picking a broker as a particularly important thing. Just as you might buy gas at the most convenient corner station no matter what brand it sells, your choice of a broker may seem arbitrary, as they all give you the access you want to the stock market. But when you look more closely, you'll realize that brokers differ greatly not just in terms of cost but also with the tools and other resources they give their customers to help them make smarter investments. That's why picking the right broker is so important.
The best of the best
Earlier this month, Barron's came out with its annual list of discount broker ratings. The list graded brokers in several categories, including cost, ease of use, trade efficiency and technology, research, and customer service. Some of the review's findings included the following:
- Topping the list was TradeStation (Nasdaq: TRAD), which earned top grades in trading technology and customer service.
- Interactive Brokers (Nasdaq: IBKR) and TD AMERITRADE (Nasdaq: AMTD) also matched TradeStation's rating of four and a half stars. Interactive Brokers came out ahead on cost, while TD AMERITRADE excelled in portfolio analysis and research tools.
- Fidelity and optionsXpress (Nasdaq: OXPS) earned four-star ratings.
- Several other popular choices weighed in with three and a half stars, including Scottrade, Schwab (NYSE: SCHW), and E*TRADE Financial (Nasdaq: ETFC).
But as you'd expect, these listings only reflect Barron's own particular balancing of the various categories it measured. What those general rankings can't do is tell you what's most important to you -- and therefore, your own personal preference may be very different.
For instance, the findings discuss how TradeStation is best suited for frequent traders, given that its powerful trading platform has a $99 monthly fee if you trade less than 5,000 shares or 50 options contracts in a given month. That may be perfect for some investors but way too costly for those who invest only occasionally. On the other hand, Bank of America's (NYSE: BAC) Merrill Edge platform posted relatively poor marks. But if you already had a relationship with Merrill and wanted the convenience of staying with the company, then switching to its discount arm could save you a bundle versus full-service commissions while letting you maintain that relationship.
To help, the listings include rankings for certain types of investors, such as long-term investors or those who trade options. On the long-term list, Fidelity and TD AMERITRADE earn top rankings, while Schwab and E*TRADE also post strong showings.
Taking a closer look
One challenge that you'll inevitably face is that it's difficult to evaluate a broker until you've actually used its resources to research investments and make trades for a while. You may find navigating around a broker's website confusing at first, yet once you figure it out, the information you find may prove invaluable.
Moreover, your needs will likely change over time, and good brokers need to keep up. For instance, with the rise of smartphones, mobile trading and tracking has become a key component for many traders who need to stay keyed into what's happening with the financial markets constantly.
Don't settle for less
What's true for everyone, though, is that with such a large array of competing brokers out there, you can hold out for one that will give you everything you possibly want. If your current broker isn't cutting the mustard, there's never been a better time to go shopping for a better match. It may seem like a hassle, but finding the right broker can make a real difference to your portfolio's bottom line.
To find the best broker for your money, be sure to check out the Fool's Discount Broker Center.
