Best Online Stock Brokers for Beginners in 2019
Congratulations! By making it to this article you've taken an important first step in your investing journey -- picking a broker. There are many stock brokers to choose from, and each offers something a little bit different. See our article below for more info on what you should be looking for, along with a list of our top online stock broker picks for beginners.
Our Bottom Line
Ally Invest impresses with some of the lowest commissions in the industry and no account minimums. It's a great choice for those looking for an intuitive platform from which to make cheap trades.Read Full Review
$4.95 per trade
$50 - $3,500 in cash, plus free trades (with qualifying deposit of at least $10,000)
On Ally Invest's Secure Website
Our Bottom Line
Merrill Edge sports low overall fees, strong research offerings, and fantastic customer support. It's a solid option for all investors, and particularly attractive for Bank of America customers.Read Full Review
$6.95 per trade
Get up to $600 bonus when you invest in a new Merrill Edge account.
On Merrill Edge's Secure Website
Our Bottom Line
E*TRADE manages to cater to active traders with multiple trading platforms, while also appealing to long-term investors with thousands of mutual funds and ETFs that can be traded for free.Read Full Review
$6.95 per trade
Get up to $600 plus 60 days of commission-free trades with qualifying deposit.
On E*TRADE's Secure Website
Our Bottom Line
TD Ameritrade stands out as one of our top all-around brokerages with outstanding tools and products, in-depth and comprehensive research, and no account minimums.Read Full Review
$6.95 per trade
Trade commission-free for 60 days + get up to $600 with qualifying deposit
On TD Ameritrade's Secure Website
Our Bottom Line
Fidelity combines low commissions, top-notch research, and an excellent mobile app, all in a simple platform. With $0 account minimums and zero-expense-ratio index and mutual funds, this is one of the most affordable brokers.
$4.95 per trade
300 or more free trades for 2 years with $50k or more deposit
Our Bottom Line
Charles Schwab has aggressively slashed fees on its mutual funds and ETFs, eliminated common account fees, and lowered its base commissions to just $4.95 per trade, making it one of the least-expensive brokers.
$4.95 per trade
500 commission-free trades for 2 years with $100k deposit
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Just as the internet made it more convenient and less expensive to buy everything from books to xylophones, online stock brokers have made it less expensive for investors to buy stocks, bonds, and funds. And the cost keeps on falling.
A stock trade that might have cost you hundreds of dollars 30 years ago can now be completed from the convenience of your living room, costing you $7 or less through all of the platforms on our list of best online stock brokers. In the article below, we’ll explain how you can pick a brokerage firm that is best fit for your individual investing needs.
What is a stock broker?
To understand the brokerage industry, you first have to understand the two types of brokers. There are full-service brokerage firms, and discount brokerage firms, both of which provide differing levels of service at very different price points.
- Full-service brokerages -- This label is given to traditional brokerage firms, primarily those that operate out of brick-and-mortar offices. Their main selling point is service, meaning that they offer more than just the ability to place a trade. A full-service brokerage firm might offer retirement planning help, tax tips, and guidance on which investments to buy or sell. Full-service brokers offer more hand-holding, and will probably even mail you a “happy holidays” card in December, but this service comes at a luxury price tag.
- Online discount brokers -- This label is generally given to the companies you see on the list here. While discount brokers are increasingly offering “extras” like research on stocks and funds, they primarily exist to help you place orders to buy investments at a very low cost. Many investors don’t need the handholding of a full-service broker, and would prefer to pay a low commission on every trade to save money and ensure more of their money goes toward their investment portfolio, not paying for frills.
One type of broker isn’t necessarily better for everyone. In fact, many people use both types of services over their lifetime. A saver who is just starting out might have more reason to use a discount broker, so as to save money while accumulating assets for retirement. Given a full-service broker might charge you as much as $500 in fees to invest $10,000 in a fund, whereas a discount broker might charge as little as $5, the cost difference alone is reason enough for new investors to use a discount brokerage firm.
As you near retirement, a full-service brokerage firm may make more sense because they can handle the complex “stuff” like managing your wealth in a tax-efficient way, or setting up a trust to pass wealth on to the next generation, and so on. At this point, it may be advantageous to pay…say, 0.50% of your assets in fees each year for advice and access to a certified public accountant who can help you with the nitty-gritty details that are more important as you start making withdrawals (rather than contributions) from your retirement accounts. That said, even discount brokers are getting into the advisory and wealth management business, so they shouldn’t be ruled out as a true start-to-finish solution for retirement.
How to buy stocks online
Online brokers make it painless to enter an order and place a trade to buy stocks. Once you have a brokerage account, you’ll just need to know the stock’s ticker symbol to place the trade. A ticker symbol is one to five letters in length, and identifies the specific stock you want to trade. For example, Amazon’s ticker is AMZN. Nike’s is NKE. Ford’s is F. And so on.
Brokers allow you to place two different types of orders when you buy stock:
- Market order -- This is an order that will be placed immediately at the prevailing market price. Thus, if you enter an order to buy 10 shares of Amazon, your trade will be filled by matching it with someone who wants to sell shares of Amazon, though not at a known price per share. I like to call this the “get me in!” order type, since it will be filled quickly, although you could end up paying a slight premium for every share to do it.
- Limit order -- A limit order differs from a market order in that the trade is only completed at a certain price. For example, if you enter an order to buy 10 shares of Nike at $70 each, the order will only go through if the broker can fill at it at a price of $70 per share. Limit orders are a good way to buy and sell stocks that trade less frequently, since there may not be enough willing sellers to fill a market order at a reasonable price. These orders are a good for “set and forget” investing, since you can place a limit order that will remain in effect until a stock reaches the price at which you’d like to buy.
Limit orders usually make the most sense for beginning investors, since they allow you to pick a specific price at which an order must be filled. Of course, there’s a case for using a market order if when your order gets filled is more important than at what price it is filled.
How to pick the right stock broker for beginners
When we thought about what separated the best brokers from the bunch, we focused on a few particular features that we believe matter most to beginning investors.
- Low commissions -- Price isn’t everything, but we like brokerage firms that offer low commission prices on stocks, options, mutual funds, and exchange-traded funds. Trades placed through an online brokerage account often cost $7 or less, so investors who are just getting started won’t break the bank to make a trade.
- Attainable minimums -- One advantage of online brokerage firms is that you can start small. We prefer brokers that are willing to support clients with small account balances, so that they can grow with the broker over time.
- Fund selection -- We like brokers that offer more than just individual stocks, bonds, or options. Our top picks also allow you to invest in thousands of mutual funds, many of which you can invest in without paying a fee or commission.
Why trading commissions matter
The most important thing for new investors to understand is that brokers make their money primarily by charging you a commission to buy a stock or invest in a mutual fund. A commission is nothing more than a fee charged to process your order to buy a stock, bond, option, or fund.
Commission prices are the key advantage of online discount brokers. Consider that a popular full-service brokerage firm charges a minimum of $50 just to buy or sell stock. The commission is variable, so the larger the order, the larger the commission. To buy or sell $10,000 of stock, a client would pay $80. On a $25,000 order, the commission surges to $205! Commissions for funds can be even higher!
Online discount brokers offer this service at a substantially lower price. Our favorite brokers for beginning investors charge less than $7 to place the same stock trade for up to 10,000 shares of stock.
|Broker||Online stock commission|
|Interactive Brokers||$1.00 minimum, $0.005 per share|
|TradeStation||$5.00 flat or $0.01 per share|
Discount brokers operate through the internet, and they don’t hire large salesforces to knock on doors to drive business. Instead, they rely on their low costs to attract customers, which is why online brokers can charge a much lower price to place a trade than a traditional full-service brokerage firm.
Hiring human brokers to make phone calls and sell clients on investing is costly. Because discount brokers avoid this cost, they can pass on the advantage to customers in the form of lower commissions. A simple rule in the financial world is that clients pay the brokers’ expenses, so the lower the brokers’ expenses, the lower the fees and commissions.
Mind the account minimum
Whereas traditional brokerages and wealth managers often have high minimums to get started (some at $500,000 or more!), online brokers allow you to start with relatively small sums. A select few even offer the ability to get started with no minimum at all.
We think a low minimum to open an account is a real advantage when you’re just starting out. That’s because you can start with…say, $500, and then add to your balance over time with monthly or annual contributions to your account. For most people, the hardest step in investing is just getting started, so we prefer brokers who have a low minimum to open an account and place a trade, so as to avoid a potential roadblock on the way to saving and investing.
Here’s how our favorite brokers compare for account minimums.
Keep in mind that even no-minimum brokers have a practical minimum. If you want to buy a share of stock valued at $500, you’ll need to deposit at least $500 plus the commission in order to place the trade. It doesn’t make much sense to put $5 into a brokerage account if the minimum commission for a stock trade is $6.95.
Brokerage account fees
Some, but not all, brokers charge a fee just to have a brokerage account. These fees can range from “maintenance fees,” which are fees you pay just to keep your account open, to “inactivity fees,” which are charged if you fail to make a certain amount of trades each year.
Just as commission prices have slowly declined over time, fees you pay for having an account are slowly declining and disappearing, too. Because the key advantage of any discount broker is low costs, online brokerage firms have whittled away at the fees they charge for having an account.
Currently, none of the six brokers we've highlighted on this page charge maintenance fees (though other brokers do, so watch out.) Win!
What you need to open a brokerage account
Opening a brokerage account is no more complicated than signing up for a social network. You can typically open a brokerage account online in about 15 minutes, provided that you have all your information ready to enter online.
In addition to your name, address, and other common information, a brokerage firm will usually ask you for all of the following when you sign up:
- Bank account -- You’ll need to fund your brokerage account, and linking it with your checking or savings account is the easiest (and fee-free!) way to do it. Moving money into a brokerage account with an ACH transfer usually takes just 1-2 days for the funds to clear. ACH transfers may also be called electronic funds transfer, or EFT.
- Social Security number (SSN) -- Your Social Security number is important for making sure your year-end tax forms are completed correctly. Don’t worry -- your broker isn’t trying to steal your identity.
- Driver’s license or state ID -- If the brokerage firm cannot confirm your identity through a quick search of a database, you may be asked to provide a picture of your driver’s license or state ID. From experience, this is more likely to occur if you’ve moved in the last few years.
Types of brokerage accounts
When you sign up for a brokerage account, you may be asked what type of brokerage account you want to open. Brokerage accounts come in three different forms: cash accounts, margin accounts, and discretionary accounts.
- Cash accounts -- This is the most basic type of brokerage account. Investors who use a cash account have to pay the full amount for any investments purchased. Thus, if you want to buy $5,000 of stock, you’ll have to have $5,000 in your account (plus any commissions to place the trade). Some brokers automatically sign up customers for a cash account, and “upgrade” the account to another type if a client requests it later.
- Margin accounts -- A margin account allows you to use borrowed money to invest. Typically, investors who use margin accounts can borrow up to 50% of the value of the investment. Thus, to buy $5,000 of stock, an investor would only have to put up $2,500 of cash, and borrow the other $2,500 from the broker. We don’t think margin accounts are particularly good choices for beginning investors, because while using borrowed money can increase your returns, it also increases the risk you lose money. If you use margin and the investments you own decline in value, a broker can sell your investments without your authorization, potentially forcing you to sell at an inopportune time.
- Discretionary accounts -- This account allows another person to buy or sell stock on your behalf without telling you. These are commonly used by people who hire a registered investment advisor (RIA) to manage their portfolio for them. Self-directed investors have no need for a discretionary account. It’s only useful if you hire someone else to manage your portfolio for you.
Realistically, most beginning investors are likely to open a cash account and keep the same type of account forever. It offers all the utility most investors need, as it allows you to use your cash balance to buy investments and, when you sell, have the cash returned to your account for withdrawals or to make another investment.
Why you can trust us
Here at The Ascent, our passion is providing expert reviews that highlight the things that actually matter when making decisions that affect your personal finances. We've published thousands of articles that have appeared on sites like CNN, MSN, and Yahoo Finance, and sometimes we even get talked into putting on a tie to appear on TV networks like CNBC and Fox. But don't worry: you'll find that our reviews are all jargon-free and written in plain english. As investors who manage our own portfolios through online brokerage firms, we have personal experience with many of the most popular online brokers which informs our view on brokers, how they compare, and pitfalls to look out for.