How does a brokerage account work?

A brokerage account is a specialized type of financial account that allows the owner to buy, hold, and sell investments such as stocks, bonds, mutual funds, and exchange-traded funds (ETFs).

How much money do I need to open a brokerage account?

It depends on your broker. There are many online and app-based brokers that have no minimum initial deposit requirements, but there are a few that do. And most full-service brokers have minimums in the thousands of dollars.

What's the difference between a discount and full-service broker?

A discount broker is an online or app-based brokerage firm that allows users to buy and sell investments and access other features without the assistance of a human stock broker. On the other hand, a full-service brokerage has real-live stock brokers who assist clients with placing trades and may also provide other personalized investment planning services like investment recommendations and tax planning advice.

Best Online Stock Brokers for Beginners for January 2021

by: Matt Frankel, CFP | Jan. 12, 2021

The Ascent is reader-supported: we may earn a commission from offers on this page. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation.

If you're new to investing and not sure where to begin, we've got you covered. The best online stock brokers for beginners can be different depending on your personal needs and preferences. For example, do you need a complex and full-featured stock trading platform, or would a simple user-friendly app be enough? Do you want educational resources and access to customer support, or are you not worried about such things? Here's our shortlist of picks for the best stock brokers for beginners, as well as what you should know before opening a brokerage account of your own

The Ascent's picks for the best online stock brokers for beginners:

Customer support: Merrill Edge® Self-Directed
Mobile platform: E*TRADE
SoFi Active Investing
Research: TD Ameritrade
Investors: Fidelity
Low fees: Ally Invest
Retirement investors: Charles Schwab
Mobile investing and banking: Cash App Investing

Show The List [+] Hide The List [-]

Ratings Methodology

Merrill Edge® Self-Directed

Open Account

Our Rating:

Rating image, 4.5 out of 5 stars.

4.5 stars

Bottom Line

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.

Read Full Review

Fees:

$0 per trade

Account Minimum:

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.

E*TRADE

Open Account

Our Rating:

Rating image, 4.5 out of 5 stars.

4.5 stars

Bottom Line

E*TRADE manages to cater to active traders with one of the best stock 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

Fees:

$0 per trade

Account Minimum:

Special Offer

Open an E*TRADE account & get $50 or more w/ code: WINTER21

Open Account

On E*TRADE's Secure Website.

SoFi Active Investing

Open Account

Our Rating:

Rating image, 4.5 out of 5 stars.

4.5 stars

Bottom Line

A clear standout with a modern experience. Beginners and long-term investors may find the most value, particularly those interested in stocks, cryptocurrencies, ETFs, and buying fractional shares.

Read Full Review

Fees:

$0 per trade

Account Minimum:

Account Minimum:

Read Review

What is a stock broker?

A stock broker is an entity that facilitates the buying and selling of marketable securities like stocks and exchange-traded funds (ETFs). Through a stock broker, you can open a brokerage account, which is a specialized financial account that is designed to hold investments as well as cash.

When you want to buy stock in a company, you can't simply call up the company and buy shares, nor can you just walk into your local bank and invest. You'll need a specialized type of account, and that's where the best online stock broker for beginners come in.

TIP

Buying your first stocks: Do it the smart way

Once you’ve chosen one of our top-rated brokers, you need to make sure you’re buying the right stocks. We think there’s no better place to start than with Stock Advisor, the flagship stock-picking service of our company, The Motley Fool. You’ll get two new stock picks every month from legendary investors and Motley Fool co-founders Tom and David Gardner, plus 10 starter stocks and best buys now. Over the past 17 years, Stock Advisor’s average stock pick has seen a 569% return — more than 4.5x that of the S&P 500! (as of 1/15/2021). Learn more and get started today with a special new member discount.

What are the different types of stock brokers?

There are two main types of stock brokers: discount and full-service. The costs and level of service you can expect from each type is very different, so if you're looking for the best online stock brokers, it's important to understand what they are.

Discount broker

A discount broker, also known as an online discount broker, is a company that allows investors to buy and sell investments online. While many discount brokers have valuable features, the actual process of buying and selling stocks is mainly user-generated, meaning that there's not an actual broker who takes and fills clients' orders.

Discount brokers are much cheaper than full-service brokers, and most actually offer zero-commission stock trading, as you'll see in the discussion about costs below. For the vast majority of investors -- especially beginning investors -- a discount broker is the best choice. In fact, our list of the best online stock brokers for beginners is exclusively made up of discount brokers.

Full-service broker

Think of a full-service broker as an "old style" broker. This is a firm that operates out of a physical office where an actual person, or stock broker, takes and executes clients' buy and sell orders. In addition, a full-service broker might provide personalized investment planning services, such as advice on what stocks to buy, tax guidance, and retirement planning help.

While costs have generally come down over the past few decades, full-service brokers are far more expensive than discount brokers. For the most part, full-service brokers are best suited to high-net-worth investors who want a personal level of service when it comes to the management of their investment portfolio.

What type of stock broker do I need?

The best type of broker depends on your personal situation, so no single type of broker will be right for everyone. However, for most beginners, the low cost structure of a discount broker makes more sense. Plus, discount brokers are becoming more feature-rich over time, with educational resources, stock research, and other valuable features available at no additional cost.

How to pick the best brokerage account

There's no perfect broker for everyone, but here are some of the important factors to keep in mind as you're scrolling through our favorite online brokers:

Cost structure: Most online brokers don't charge any commissions for online stock trades, but many do have commissions or fees for things like option trading, mutual funds, and other features.

Account minimums: Some online brokers have no minimum initial deposit requirement, while others require a certain amount of money to get started, such as $500. If you want to get started with a relatively small amount of money (and we certainly encourage you to start investing, even if you don't have a ton of capital), be sure the online broker you choose can accommodate you.

Mutual funds: Investing in individual stocks isn't right for everyone. If you plan to invest some or all of your account in mutual funds, be sure that your broker offers a large selection, and preferably a large number of no-fee choices.

Features: If all you want to do is occasionally buy and sell stocks, a no-frills stock trading app or platform could be all you need. On the other hand, there are online brokers that offer vast educational resources, access to third-party stock research, live-streamed news, and more. And, if you plan on being a more active investor, some online brokers have more complex and feature-packed stock trading platforms. But it's important to stress that there is no one best investment platform for beginners -- it depends on your needs and preferences.

Where can you buy stocks?

While traditional discount and full-service brokers are where most investors go to buy stocks, they're not the only option. Investors are now flush with options of where to buy stocks with mobile money-related apps now offering a suite of investment services in addition to budgeting and payments tools. Apps such as Acorns and Square's Cash App are great options for buying stocks and managing an array of money needs.

Many brokers have also introduced robo-advisor offerings. These are different than a traditional brokerage accounts in that investors mostly set their portfolio selection on cruise control and let automated algorithms do the stock buying for them, instead of individually picking stocks or working with a financial advisor. The result is a low-cost solution that's a great fit for hands-off investors.

Trading commissions and account minimums

Trading commissions and account minimums are largely a thing of the past -- especially when it comes to our best brokerage accounts for beginners. Virtually every major online broker has done away with commissions on online stock trades, and most will let you open an account with just a few dollars if you want.

However, some still have minimum balance requirements and others may require a minimum amount of money to utilize certain features, such as margin investing. And while most have no commissions for online stock trades, most brokers do have commissions for trading options and mutual funds, among other things. That means it's worth taking a look at a particular broker's fee schedule before deciding whether to open an account.

Why commission fees matter

Here's why trading commissions are so important: Let's say that your broker charges a $6.99 commission for online stock trades and you have $1,000 to invest. You want to spread your money across a portfolio of five stocks. So, to make your initial investments, you'll pay nearly $35 in trading commissions. This means that you're effectively starting out with a 3.5% loss in your portfolio. Plus, you'll pay another $6.99 every time you add to each one of your stock positions. If you're planning to build up your portfolio over time, it's not hard to see how this can rob you of thousands of dollars over the years.

As you can see from the table below, all of our best brokerage firms for beginners offer commission-free stock trading. However, the commissions and fees for other types of trades and services can vary dramatically, so it's still important to look at the entire fee schedule before deciding on a broker.

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

Keep in mind the account minimum

Most major online brokers -- including all of the brokers listed on this page -- have no account minimum whatsoever. This historically hasn't been the case, and when I opened my first brokerage account nearly 20 years ago (with one of the companies on this page), I needed $2,000 just to get started.

A low minimum deposit requirement is especially important for beginners or younger investors who may not have a ton of capital available immediately but want to gradually build their first investment portfolio.

As mentioned, all of our favorite online brokers for beginners have no minimum balance requirements to open or maintain a brokerage account, but this isn't necessarily true for all online brokers. So, if you're considering one that isn't on our list, this is an important piece of information to find.

What do I need to open a brokerage account?

The process for opening a brokerage account is similar to the process for opening a checking or savings account. If you're using an online broker, it should take you about 15 minutes and should involve filling out a few simple forms.

To help expedite the process, make sure you have these available:

Social Security number (SSN): Not only is your SSN used for identity-verification purposes, but your broker needs this information to prepare year-end tax forms. If your account earns interest, receives dividend payments, or you sell investments resulting in a profit (or loss), there may be tax implications.
Driver's license or other form of ID: If you don't have a driver's license, you can typically use another state-issued ID or a U.S. passport to verify your identity.
Funding method: The easiest way to fund a new brokerage account is by an ACH transfer from your bank account, so be sure to have your bank information handy if you plan to use this method. Alternatively, you can mail a check or wire money, and your broker might have other funding options as well.

Best online stock brokers for beginners compared

With all of this in mind, here's our up-to-date list of top online brokers for beginning investors. There's no one-size-fits-all best broker for all investors, so read through our notes about each one and decide which might be the best choice for you.

Broker/Advisor	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	Open Account
E*TRADE	Best For: Mobile platform	Commission: $0 per trade	Rating image, 4.5 out of 5 stars. 4.5 stars	Open Account
SoFi Active Investing	Best For:	Commission: $0 per trade	Rating image, 4.5 out of 5 stars. 4.5 stars	Open Account
TD Ameritrade	Best For: Research	Commission: $0 per trade	Rating image, 5.0 out of 5 stars. 5.0 stars	Read Review
Fidelity	Best For: Investors	Commission: $0 per trade	Rating image, 5.0 out of 5 stars. 5.0 stars	Read Review
Ally Invest	Best For: Low fees	Commission: $0 per stock trade	Rating image, 4.5 out of 5 stars. 4.5 stars	Read Review
Charles Schwab	Best For: Retirement investors	Commission: $0 per trade	Rating image, 4.5 out of 5 stars. 4.5 stars	Read Review
Cash App Investing	Best For: Mobile investing and banking	Commission: $0 per trade	Rating image, 4.0 out of 5 stars. 4.0 stars	Read Review

FAQs

A stock broker is an entity that facilitates the buying and selling of investment securities within clients' brokerage accounts.
A brokerage account is a specialized type of financial account that allows the owner to buy, hold, and sell investments such as stocks, bonds, mutual funds, and exchange-traded funds (ETFs).
It depends on your broker. There are many online and app-based brokers that have no minimum initial deposit requirements, but there are a few that do. And most full-service brokers have minimums in the thousands of dollars.
A discount broker is an online or app-based brokerage firm that allows users to buy and sell investments and access other features without the assistance of a human stock broker. On the other hand, a full-service brokerage has real-live stock brokers who assist clients with placing trades and may also provide other personalized investment planning services like investment recommendations and tax planning advice.

About the Author

Matt Frankel, CFP

Matt is a Certified Financial Planner® and investment advisor based in Columbia, South Carolina. He writes personal finance and investment advice for The Ascent and its parent company The Motley Fool, with more than 4,500 published articles and a 2017 SABEW Best in Business award. Matt writes a weekly investment column ("Ask a Fool") that is syndicated in USA Today, and his work has been regularly featured on CNBC, Fox Business, MSN Money, and many other major outlets. He’s a graduate of the University of South Carolina and Nova Southeastern University, and holds a graduate certificate in financial planning from Florida State University.

Like this page? Share it!