What to Consider When Choosing an Online Brokerage

Olivia Clifford  |

As the Internet continues to be the forefront of everyday life for most people, it’s no surprise why online stock trading has become as important as ever for many investors. What that also means is that picking the right online broker is becoming increasingly vital. As more and more people sign on to these online trading platforms, shopping around brokerages can be a daunting task, particularly for first time investors. There are many different factors to take into consideration, but the decision ultimately boils down to personal investment styles and preferences.

The first aspect an investor should consider is their own investment profile. Different online brokerages are better for long-term investments versus frequent short-term investments. These subtle differences can make a big difference in finding the brokerage that fits well with a particular investor’s style and needs. For first time investors in particular, full-service websites like TD Ameritrade and Fidelity may be the safer option as they usually feature larger collections of educational information and more user-friendly websites versus the more technical sites that active day traders use.

What to Look for in an Online Brokerage:

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  1. Commissions and Fees: Cheaper isn’t always better. When it comes to online brokerages, abide by the idea that you get what you pay for. Beginner investors are more inclined to start with a full-time service broker versus more experienced traders who can lean towards doing it themselves. In addition to standard commissions, investors need to pay attention to higher fees for other transactions like using limit orders, options and over-the-phone trading. In general, commission costs can vary in range from brokerage to brokerage, but most are priced around $10 per trade.
  2. Deposits and Account Minimums: Pay close attention to the minimum deposits that is required for each brokerage firm, particularly if they are higher. Brokerages typically will charge penalty fees if the minimum is not met. Another factor to consider is what the brokerage does with idle cash. Some firms offer sweep accounts to help generate higher interest on available cash. More than likely, investors will usually have available cash in their brokerage account at one time or another. If their online brokerage offers interest on the balance, it can help generate additional returns. 
  3. Track Record and Credibility: One of the most important factors to consider is making sure that the brokerage firm is legitimate. Read the reviews and find out as much as possible about each of the brokerages such as customer satisfaction, reliability of the website, privacy and online security, etc. 
  4. Alternatives: Alternative methods of trading can become important for investors who are not always at their computer. Investigate if the brokerage offers alternative methods of trading such as call or fax trading. As mentioned above, watch the prices that come along with the alternative trading they can get pricey.
  5. Customer Service: When exploring each website, it’s a great idea to check the accessibility and helpfulness of their customer service. Seeing how long it takes to get through, how thorough they are in their responses and their general overall helpfulness. It’s also helpful as an investor to check the overall efficiency of the website. Checking back at different times of the day, particularly at peak trading hours, to make sure that the site runs quickly and efficiently.

While most brokerages offer one form of advantage or another for investors and traders, it is up to the individual consumer to decide which one works best for them. As new online brokerages continue to pop up in the industry, the options for investors to choose can seem incredibly daunting. But once they determine what they want, finding who can provide it becomes a much simpler process.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.


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