Published in: Buying Stocks | Dec. 3, 2018
It wasn't all that long ago that buying stock or funds could be done only by phone, and each buy and sell carried a very steep commission. Today, the top online brokerages offer more bells and whistles -- research, international stocks, and more -- at a fraction of the cost of brokerages in the past.
Two well-known and widely used brokers, Merrill Edge and Charles Schwab, offer individuals access to the markets through their computers or phones. Below, we'll review each broker's features and how they compare to one another.
As trading costs drop toward zero, the differences in trading commissions at online discount brokers have shrunk. For its part, Charles Schwab has been one of the leaders in driving down commission costs in recent years. The company was the first mainstream online broker to eliminate commissions for online stock trades, and most competitors have since followed suit -- including Merrill Edge.
|Broker||Stocks and ETFs||Options||Mutual funds|
|Charles Schwab||$0 per trade||$0.65 per contract||$49.95 (thousands for free)|
|Merrill Edge||$0 per trade||$0.65 per contract||$19.95 (more than a thousand for free)|
One big asterisk: Charles Schwab's mutual fund commissions appear much higher than Merrill Edge's at $49.95 per purchase, but it offers one of the largest selections of mutual funds you can buy without paying a transaction fee.
Does your portfolio include a lot of mutual funds? If so, you'll want to check out the availability of no-transaction-fee (NTF) mutual funds. These are funds that brokers allow their clients to buy and sell without paying a commission or fee. As you can see in the chart above, mutual fund commissions can be rather costly if the fund you're buying doesn't fall into this category.
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Charles Schwab easily gets the win here for having a wider selection of no-transaction-fee mutual funds, although Merrill Edge offers plenty of commission-free mutual funds itself.
Neither Charles Schwab nor Merrill Edge has a minimum initial deposit, thus enabling you to open an account with whatever you deem appropriate. As some brokers have minimums that can rise as high as $10,000, no-minimum account requirements can be a boon for investors who are just getting started.
Of course, some mutual funds have their own minimum thresholds for investing, which can range from as low as $500 to as high as $10,000. Notably, Charles Schwab offers a number of mutual funds with special, $100 initial minimums with add-on investment minimums of just $1, which is a compelling feature for investors who want to start small. Schwab also offers the ability to buy fractional shares of stock, so you can buy your first stock with literally just a few dollars, regardless of its share price.
Both Merrill Edge and Charles Schwab have trading platforms their customers love. Merrill Edge uses a web browser-based platform, as well as a mobile platform for Android and iOS. If you keep a combined balance of at least $50,000 in eligible accounts, make 15 trades per quarter, or qualify for free trades through the loyalty program, you can get access to Merrill Edge MarketPro, which is the brokerage's more-powerful browser-based platform.
Charles Schwab offers browser-based, desktop, and mobile app-based platforms to its clients. Its web browser-based Trade Source platform offers streaming quotes, news for all your portfolio positions, and a tab-based navigation so that you can quickly move to and from different stocks or funds. Those who want a full desktop platform experience may prefer its StreetSmart Edge product, which boasts more advanced charting, access to research, plus a fully customizable layout. Best of all, there are no activity or trading volume restrictions for using its desktop platforms.
The internet makes it easier to invest in foreign companies than ever before. Both Merrill Edge and Charles Schwab enable investors to buy American depositary receipts (ADRs), which represent ownership of foreign companies, but trade domestically. Most major foreign companies (think Adidas, for example) have ADRs that enable investors to invest in them without transacting on international markets.
If you'd like to trade overseas, Charles Schwab offers ways to trade on foreign markets. A Schwab Global Account offers access to electronic trading in 12 markets, while its Global Services desk makes more than 30 markets available to its clients. Additional commissions may apply, however, with prices varying by the security and exchange. Merrill Edge does not currently offer trading directly on international markets.
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Although discount brokerages are generally defined as providing fewer services than full-service brokers, the industry has bridged the gap over time. Discount brokers that once offered little more than just a way to place a trade now offer full libraries of research on individual stocks and funds directly from their trading platforms.
Merrill Edge customers get access to research and investment tips from Morningstar, S&P Capital IQ, and its own BofA Merrill Lynch stock analysts, to name just a handful of things clients can expect. Meanwhile, Charles Schwab provides research and updates from Credit Suisse, Schwab proprietary ratings and research, and news and reports from S&P, Reuters, and more. It also offers completely free Morningstar research reports for individual stocks, which may be a major selling point for those who prefer to pick individual stocks.
Both brokers have their pros and cons. Merrill Edge is a likely winner for anyone who has an existing deposit or investment relationship with Bank of America, as connecting accounts can add a lot of convenience.
On the other hand, Charles Schwab offers a lengthy list of mutual funds you can buy without paying a transaction fee on the trade. Lowered minimum investments on many popular mutual funds you can buy through its OneSource™ platform also make it a top pick for new investors, and the ability to buy fractional shares and invest in non-U.S. stock markets can be major perks for many people.
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