The Complete Guide to Choosing an Online Stock Broker

If you’d like to invest in stocks, bonds, mutual funds, and other tradable securities, you need a brokerage account to process your trades. In the past, this meant working with a human stockbroker who helped investors and traders facilitate stock trades. The internet completely transformed the industry, lowering fees and creating all kinds of options for investors. You have plenty of quality online stock brokers and trading platforms to choose from, but the right fit depends on your investment style and preferences. Read on for our complete guide to choosing an online stock broker.

How to Choose an Online Stock Broker

Each online stock broker has its own setup for investment offerings, features, fees, and customer service. Some do a better job than others, depending on what you’re looking for. Our complete guide to choosing an online stock broker gives a step-by-step process to properly vet your options. 

Step 1: Know Your Financial Goals and Investing Style

There’s more than one way to invest and even more ways to trade. Some investors like to keep it simple. Others try to squeeze out every edge they can to maximize profits. Different online stock brokers cater to these different audiences. Here are some of the most popular trading styles and the platforms that could make the most sense for them. 

Active Trading

Active traders spend more time researching and planning their portfolios in an attempt to earn a higher return. Active investors might day trade, use advanced strategies like scalping and swing trading, and trade more complicated assets like forex and futures. Interactive Brokers and Charles Schwab are two strong candidates for the best online stock broker for day trading, thanks to their powerful platforms, wide investment selection, and wealth of research and features.

Automated Trading

With automated trading, a computer program plans and manages your portfolio. You can also use a hybrid system, where a human advisor works with the robo-advisor. Wealthfront and Betterment are two of the best online stock brokers for automated trading.  

Investing

With long-term investing, you set up a portfolio on your own but don’t constantly change it. You might be investing for value, buying companies you think are underpriced, or for growth, buying companies that you think have good prospects for the future. Vanguard is a good choice for investing in mutual funds, Schwab is good for investing in exchange-traded funds (ETFs) and is the best online stock broker for beginners. Fidelity offers the best overall full-service features for investing.

Compare the Best Online Brokers

Step 2: Evaluate Account Features

Once you know what investment strategy you’d like to use, dive deeper into the account features of online stock brokers to inform your choice.

Available Account Types 

There are different investment account types, with different rules for taxes and ownership. Brokers may not offer all possible types, which could be a factor depending on your goals. 

Here are the most common:

• Brokerage accounts: A brokerage account is a standard investment account. These should be available at any online stock broker, and the majority of them should allow their customers to open an individual or joint account.
• Retirement accounts: Retirement accounts offer tax advantages for your investments, like tax-deferred growth to delay taxes on your earnings. You could open an individual retirement account (IRA) for yourself. If you’re self-employed, you could also look for a small business retirement account such as a SIMPLE IRA, SEP IRA, or self-employed 401(k).
• Custodial accounts: Custodial accounts allow you to invest on behalf of a minor child until they reach adulthood.
• 529 plans: These are investment accounts designed to save for college costs with tax breaks.
• Trust accounts: Trust accounts invest using money in a trust fund.

Available Platforms 

Online stock brokers can offer web, desktop, and mobile-based platforms. Some offer all types, while others specialize in one or two. Consider how you prefer to track and manage your investments.

• Web-based platforms: Web-based platforms are accessed through your browser. They tend to be simpler, making it convenient and easy to manage your investments online.
• Desktop platforms: You need to download desktop platforms to your computer. These tend to be the most powerful, with more features, research, and trading options.
• Mobile platforms: Mobile platforms have become much more popular over the past decade and are a necessity for many investors. They offer similar functionality to web-based platforms and are ideal for those who want to invest while on the move.

Available Asset Classes

What kinds of investments do you want to make for your portfolio? While some asset classes are available with any online stock broker, others are less common.

• Stocks: Stocks let you buy a small ownership share in a publicly traded company, so you share in its profits.
• Bonds: Bonds are loans to companies, governments, and other organizations. You earn interest on your bond until you get the loaned funds back.
• ETFs: ETFs build a portfolio for investors managed by a professional. Like stocks, you can buy and sell ETFs during the trading day.
• Mutual Funds: Mutual funds operate like ETFs, except you can only buy and sell fund shares at the end of the trading day.
• Options: Options are investment contracts between two investors in which one purchases the right to buy or sell an investment at an agreed-upon price for a set period.
• Futures: Futures contracts establish an agreement in which an investor agrees to buy an asset at a set price by a future date. Investors trade the contracts themselves but not the physical goods.
• Commodities: Commodities trading covers investments in essential, physical goods like metals, energy, and agricultural products.
• Cryptocurrency: Cryptocurrency is a new investment and includes decentralized digital currencies like Bitcoin and Ethereum.
• Alternative Investments: Alternative investments, such as hedge funds, venture capital, artwork, and real estate, trade outside traditional stock markets.

Step 3: Evaluate Account Fees and Requirements

Stock brokers charge fees for their services, though costs have fallen dramatically in the internet era. As part of your research, pay attention to a broker’s potential fees and account requirements.

You should also check whether a broker uses payment for order flow (PFOF). Some brokers offer their services practically for free, but they could potentially profit as part of executing your trades in exchange. As a result, the cheapest online stock broker might not make sense if you’re using more advanced strategies where it’s important to get the best terms for trade execution. 

Account Minimums

Some brokers require a minimum balance to open and maintain your account. Otherwise, you could owe a monthly fee. Account minimums have become less common in the online era. Top brokers usually let you open for no minimum or only a few hundred dollars. If you’d like a human advisor, minimums could be higher, in the five- or six-figure range.

Fees

Online stock brokers have been aggressively lowering fees to attract more customers. You usually don’t see brokers charging trade commissions or account fees. Other fees are more common. 

• Account fees: A stock broker could charge you a fee simply for having an account with them. You might also owe an account fee if your balance falls below a required monthly minimum or if you want to access more advanced features.
• Commissions: Brokers may charge commissions to process your buy and sell orders for investments. If you trade frequently, the commissions can eat into your trading profits.
• Margin rates: Margin is when you borrow money from the broker to make trades with the hope of making higher profits. Each broker sets its margin interest rates.
• Transaction fees: Brokers may charge a flat transaction fee to process trades instead of a commission based on your trade size. It’s also possible that a broker may charge transaction fees for investing in specific asset types, like bonds or mutual funds. Be sure to check the possible fees for your target investments.
• Advisory fees: If you want to hire a broker to set up and manage your portfolio, it will charge advisory fees. Human advisors tend to be much more expensive than robo-advisors: 1% or more of your portfolio per year vs. around 0.25%. Expect to pay more for a full-service broker that helps with your trades versus a DIY discount broker. 

Compare the Best Discount Brokers

Step 4: Evaluate Research and Account Amenities

You rely on your online stock broker to provide the research and trading tools needed to build a successful portfolio. Some offer more account amenities than others. Here are a few that could be worth looking for as part of your online stock broker comparison. 

Research

You need ongoing research to decide what to buy and sell for your portfolio. Some brokers offer their own proprietary research from in-house experts to guide your decisions. This includes valuations, trends, forecasts, and recommendations for your picks.

Brokers could also give you access to third-party investment research websites like Morningstar and Benzinga. If you’re partial to a research website, see that it’s included with your broker.

Charting Features

Charting allows you to see the price trends for a stock or other investment. Through these charts, you can potentially identify pricing patterns for trades. This strategy is called technical analysis. Some brokers offer basic charting, while others have much more serious capabilities.

• Chart types: Candlestick, bar, and line charts are the most common. A broker could offer more advanced variations, like hollow candles and step lines.
• Indicators: Technical indicators provide more information on an investment chart, like momentum for trades, the total volatility in price swings, and an estimate of investor sentiment. With these indicators, you can better understand what will happen next.
• Drawing: More advanced brokers offer drawing features for their charting. This allows you to use strategies like drawing Fibonacci retracement levels and Gann indicators to find price patterns. 

Screeners

Screeners let you sort through many possible investment options using criteria that fit what you’re looking for. For example, a stock screener could identify companies with a target price-to-earnings ratio. Some brokers have in-house proprietary screeners. Others use popular screeners from external companies like Trade Ideas, Trading View, and Zacks.

Deposit and Withdrawal Methods 

Consider how you’d like to deposit and withdraw money from your online stock broker. Electronic ACH transfers are usually free. If you’d like to use other methods, like wire transfers, pay attention to the possible fees.

You should also check how quickly deposited funds would be available for trading. Some brokers offer instant deposits, letting you trade some of the funds even before the money arrives from your bank. That way, you could take advantage of an opportunity before it disappears.

Quotes Presented in Real Time

It can take time for brokers to show the actual market price of investments. There’s usually a 15-minute or so delay. If you’re an active trader where every minute counts, you could look for a broker that provides real-time quotes. Some brokers offer real-time quotes for free while others charge for this service. 

Order Timing and Execution

Brokers have different speeds for executing your investment orders. If you plan on using more advanced strategies that depend on order timing, search for a broker that specializes in fast execution.

Trading in Extended Hours

Traditional markets for stocks, bonds, and ETFs are open during regular business hours: Monday through Friday, 9:30 a.m. to 4 p.m. ET. However, some brokers offer extended-hour trading outside these hours, which could be appealing depending on when you like to invest.

Paper Trading and Backtesting

Paper trading allows you to build a portfolio using play money. Backtesting lets you set up a strategy and see how it would have performed according to historical data. Both could be useful if you’re still learning and want to experiment. If so, look for a broker that offers these capabilities.

Order Types

Order types let you set up possible trades and under what circumstances they go through. Some brokers only offer basic order types, while others offer more options. Consider whether you need more than the basics. 

Basic order types are:

• Market: A market order processes your buy/sell order at the current market price. There are no conditions.
• Limit: Limit orders set a maximum price for buying or a minimum price for selling. The trade won't go through if the market price exceeds these limits before your trade executes.
• Stop: A stop order sets a price at which you want a trade to go through. It will only execute if the market price hits your stop limit.

Advanced order types are:

• Contingent: Contingent orders only go through if the investment meets specific criteria. There are more options than a basic limit order. Contingent orders could be based on percentage change in the price, when the price hits a 52-week high, or on volume, for instance. 
• One-cancels-the-other (OCO): With OCO trades, you set up two possible trades. If one executes, the other order is automatically canceled. 
• One-triggers-the-other (OTO): An OTO trade has two possible trades. If one hits its condition, the other goes through. 

Customer Service

Check out the possible ways to reach customer service and the hours of support at a broker. Make sure that you are comfortable with the options. For example, is it online-only, or can you speak to someone over the phone? You should also check whether you can get help from licensed brokers or financial advisors.

Education 

Brokers can provide numerous educational materials to help investors improve their trades and portfolios. Consider how you’d like to learn and ensure these options are available.

Some popular education options include:

• Blogs
• Videos
• Courses
• Newsletters
• Podcasts
• Social trading (where you share strategies with other investors and can even copy their trades)

Step 5: Assess Security and Account Protection

You depend on a broker to safeguard your investments and money. The government regulates stock brokers through agencies like FINRA and the SEC. If a broker breaks regulations—for example, misleads you on costs or mishandles trade execution—it could be fined and pay restitution to you as an investor. Still, it’s better to do your research first and make sure to work with a broker that’s legit.

In addition, brokers must have the following insurance to protect your funds:

• FDIC: FDIC insurance covers your money in bank deposit accounts, such as a cash management account at a broker. The standard protection is $250,000 of insurance per investor. If the broker goes bankrupt, you’re insured to get your cash back.
• SIPC: SIPC insurance protects investments and cash in your portfolio if the broker goes bankrupt. You have up to $500,000 of protection, with a $250,000 maximum for cash in your portfolio.
• FINRA: FINRA lays out regulations to protect your private information. It also requires brokers to keep investor funds separate from their own accounts.
• Supplemental: Some brokers provide extra supplemental insurance, like FDIC insurance far above the standard $250,000. If you have a large balance, search for supplemental coverage.

Security 

Brokers should properly protect your account against identity theft and theft of assets. Data breaches have been known to happen, where brokers lose sensitive information such as personally identifiable information (PII).

Make sure your broker has appropriate online security measures, including:

• Protection against fraud: Many brokers provide full protection against losses due to fraudulent activity in your account. If you lose money due to fraud, you will be reimbursed 100%.
• Two-factor authentication: Two-factor authentication uses your smartphone to provide extra protection for logging into your account.

Step 6: Test the Online Brokerage Platform

Once you find a broker that looks promising, you should take it for a test drive. Many brokers let you set up an account with no minimum deposit. You can see how the trading platform works and get a feel for what it would be like to invest. You could also contact each company and see if it offers some sort of demo on how to use the platform. That way, you can make an informed choice before investing money.

Step 7: Choose Your Online Broker

After completing all the steps in the complete guide to choosing an online broker, you should be ready to make your selection. You’ll need to finish setting up your account and make your first deposit so you can start investing for real.

Remember, you aren’t limited to just one online broker. You could split your portfolio between a broker with a great robo-advisor and a broker that is better for active day trading. 

If you aren’t happy with your selection later, you could transfer your money and portfolio to a new broker. While there might be a transfer fee, the new company may cover it on your behalf to land your business.

The Bottom Line

When you pick an online stock broker, you’re hopefully launching a relationship you can count on for years. Don’t rush into the first option you see. By comparing the fees, investment options, platforms, and account amenities, you can feel confident in your research and selection. Check out our recommendations for the best online stock brokers for more on finding the right place for your portfolio.