by Christy Bieber | Updated July 21, 2021 - First published on May 24, 2021
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With so many choices out there, there's no reason to settle on just any stock broker.
Like a lot of people, I have money invested in an online brokerage account. There are many different online brokers to choose from, and before I opened my account, I did extensive research to choose the best one for my situation.
While I discovered there's a wide variety of features offered by brokers, there were two in particular that were an absolute must for me. In order for me to open an online account with the company, I wanted no commission fees and the ability to trade fractional shares.
Here's why these two features matter to me.
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For years, I had to pay a commission to both buy and sell stocks. That used to be the norm in the industry, and I was always frustrated by this because it ate into my profits. It also forced me to wait until I had larger amounts of money before I could invest since it didn't make sense to buy a share or two and pay such a high fee to do it.
Fortunately, there are now plenty of options when it comes to zero-commission trading, as most online brokerage firms have eliminated these fees. Since there are plenty of options out there for companies that don't charge you to trade, I absolutely wouldn't work with a broker that imposes this type of cost.
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The second feature that matters when it comes to my brokerage firm is the ability to trade fractional shares. Fractional shares are partial shares of stocks. They're purchased differently than traditional full shares.
Before, if you wanted to buy into a company such as Amazon, you'd specify how many shares you wanted to purchase. With fractional shares, you instead put in a purchase order for a specific amount of money you want to invest. You'll then become the owner of whatever number of shares that buys you -- even if it's a fraction of a share.
For example, since Amazon is trading for around $3,400, if I specified that I wanted to buy $200 worth of Amazon stock, I'd get around 0.059 of a share of Amazon.
Not all brokers offer fractional shares, as this is a newer concept, but a growing number do. And I want to be able to buy shares in any business I'm interested in, even if the price of the share is pretty high and I don't have enough money to buy a full share. That's why I won't invest with a broker that doesn't offer this trading option.
Some brokers that do provide fractional share trading also have higher investment amount limits than others. For example, they may require you to invest at least $5 in fractional shares. Others will allow you to buy as little as 0.001 of a share as long as your transaction is at least $0.01. I don't trade that small of an amount, so this isn't a huge concern for me. But I did make sure my broker allows me to buy fractional shares of both stocks and exchange traded funds (ETFs). That's because some brokerages are more restrictive than others in terms of what kinds of investments you can buy fractions of.
Together, the elimination of commissions and the introduction of fractional shares have helped democratize investing. Now anyone can buy stocks of big-name companies even if they don't have a huge fortune to invest. I'm happy to be able to take advantage of this new financial freedom, so I expect my broker to afford me that opportunity.
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