Best Online Stock Brokers for Beginners for February 2020

Matt is a Certified Financial Planner® and investment advisor based in Columbia, South Carolina. He writes personal finance and investment advice, and in 2017 he received the SABEW Best in Business Award.

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By making it to this article you've taken an important first step in your investing journey -- picking a stock broker. There are many brokers to choose from, and each offers something a little bit different. See our guide below for more information on what you should be looking for, along with a list of our picks for best online stock brokers for beginners.

Ratings Methodology
Why Apply

Merrill Edge sports $0 stock and ETF trades, strong research offerings, and fantastic customer support. It's a solid option for all investors, and particularly attractive for Bank of America customers.

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Fees:

$0 per trade

Account Minimum:

$0

Special Offer

Get up to $600 when you invest in a new Merrill Edge® Self-Directed account

Open Account

On Merrill Edge® Self-Directed's Secure Website.

Why Apply

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.

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Fees:

$0 per trade

Account Minimum:

$0

Special Offer

Limited time! Deposit or transfer as little as $5,000 to get $100. Or add even more for up to $2,500.

Open Account

On E*TRADE's Secure Website.

Why Apply

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.

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Fees:

$0 per trade

Account Minimum:

$0

Special Offer

Trade commission-free and get up to $2,500 when you open and fund an account

Open Account

On TD Ameritrade's Secure Website.

Why Apply

Fidelity combines $0 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.

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Fees:

$0 per trade

Account Minimum:

$0

Why Apply

Ally Invest impresses with $0 commissions and $0 account minimums. It's a great choice for those looking for an intuitive platform from which to make cheap trades.

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Fees:

$0 per trade

Account Minimum:

$0

Why Apply

Charles Schwab has aggressively slashed fees on its mutual funds and ETFs, eliminated common account fees, and lowered its base commissions to $0 per trade, making it one of the least-expensive brokers.

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Fees:

$0 per trade

Account Minimum:

$0

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Just as the internet has 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, and for no cost at all through most of the online trading platforms on our list. In the article below, we'll explain how you can pick a brokerage firm that is the 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 with 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 hand-holding of a full-service broker, and would prefer to save money by paying no commission for online stock trades. That way they 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.

A full-service broker might charge you as much as $300 in fees to invest $10,000 in a mutual fund or up to $100 to invest that same amount in a stock. On the other hand, a discount broker typically charges no commissions for online trades and has a list of no-commission mutual funds. That means 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 0.50%-1% 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. All the online brokers that we know of have tools to help customers look up ticker symbols.

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. In most cases, however, you'll end up paying the stock's "ask" price, or very close to 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. They are also good for stocks that you feel are too expensive right now, but that you'd be willing to buy if the price dropped. 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.

  • Little or no commissions: Price isn't everything, but we do like brokerage firms that offer zero commissions on online stock and ETF trades, and low commissions on things like options and broker-assisted trades. Most online brokers have similarly low fee structures, but there could still be some differences that matter to you.
  • 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.
  • Features: Now that most online brokers don't charge commissions, it's more important than ever to compare the features you get. Some online brokers have tons of research available, educational tools to help you learn investing, and more. These can be very valuable assets for beginning investors, so keep this in mind when comparing brokers. After all, if the cost of investing is the same (zero) at most online brokers, you might as well get as much value for your money as possible.

Why trading commissions matter

One important thing for new investors to understand is that some brokers make their money 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 -- and commissions for funds can be even higher.

Most online discount brokers now offer this service for free! Our favorite brokers for beginning investors charge $0 per trade.

Broker Online stock commission
Ally Invest $0
Charles Schwab $0
E*TRADE $0
Fidelity $0
Interactive Brokers $0
Merrill Edge $0
TD Ameritrade $0

Discount brokers operate primarily through the internet, and they don't hire large sales forces 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.

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. The hardest step in investing is often just getting started, so we prefer brokers who have a low minimum to open an account and place a trade, which cuts out a potential roadblock on the way to saving and investing.

Here's how our favorite brokers compare for account minimums.

Broker Account minimum
Ally Invest $0
Charles Schwab $0
E*TRADE $0
Fidelity $0
Merrill Edge $0
TD Ameritrade $0

Brokerage account fees

Some, but not all, brokers charge brokerage account fees. 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 (and are now mostly gone), the fees you pay for having an account are slowly declining and disappearing, too. Since 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 at the ready.

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.

FAQs

  • You generally need a brokerage account to buy stocks. There are limited exceptions, such as if you participate in a direct stock purchase plan offered by a company you’re interested in owning shares of.

  • The minimum initial deposit required to open a brokerage account will vary depending which broker you select. Many online brokerage accounts allow you to get started investing with $0 or with a very small initial deposit.

  • Most brokers allow you to open a brokerage account regardless of your credit history. However, you may not be eligible to trade on margin.

  • 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.

Broker Best For Commission Rating Start Investing
Merrill Edge® Self-Directed
Best For:

Customer support

Commission:

$0 per trade

Rating image, 4.5 out of 5 stars.
4.5 stars
ToolTip Icon for Star Rating. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor.
E*TRADE
Best For:

Mobile platform

Commission:

$0 per trade

Rating image, 4.5 out of 5 stars.
4.5 stars
ToolTip Icon for Star Rating. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor.
TD Ameritrade
Best For:

Research

Commission:

$0 per trade

Rating image, 5.0 out of 5 stars.
5.0 stars
ToolTip Icon for Star Rating. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor.
Fidelity
Best For:

Investors

Commission:

$0 per trade

Rating image, 5.0 out of 5 stars.
5.0 stars
ToolTip Icon for Star Rating. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor.
Ally Invest
Best For:

Low fees

Commission:

$0 per trade

Rating image, 4.5 out of 5 stars.
4.5 stars
ToolTip Icon for Star Rating. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor.
Charles Schwab
Best For:

Retirement investors

Commission:

$0 per trade

Rating image, 4.5 out of 5 stars.
4.5 stars
ToolTip Icon for Star Rating. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor.

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