How to Choose an Online Stock Broker

• See how to find out the right online stock broker for you and the key question you must ask.
• Robinhood changed the game for brokers — discover what that means for other brokers and YOU.
• What you need to know BEFORE you choose your broker…

We’ve partnered with TradeZero — which means that you get bonuses when you sign up! 

Choosing an online stock broker is the first step toward trading. For many aspiring traders, the question of the best stock app is one of the hardest.

Unconventional investing and trading apps like Robinhood have only served to further muddy the waters. So how do you find the best stock trading app — or stock broking app as the kids say?

It’s all about the questions you ask. Let’s start with the most basic…

What Is an Online Stock Broker?

An online stock broker is a web-based broker that facilitates trades.

These days, pretty much every stock broker has an online presence. If you’re an active trader, you’re probably not calling your broker on every trade…

Using the phone is too slow for most traders. And it’s far less fun than controlling your own trades.

Every broker has its own online trading platform. Brokers like E-Trade and Interactive Brokers are only online.

While this variety is a good thing, it can make your choice more difficult. These days, there are a lot of contenders for your account.

How to Choose an Online Stock Broker

Choosing your first online stock broker can feel like a big decision…

There are a lot of options vying for your trading dollars. And different brokers will affect how you trade.

Here’s the good news — you’re not locked into the broker you choose. Since Robinhood ushered in the age of no account minimums, it’s become easier to do…

I’d even say that it’s a good idea to try out multiple brokers. This way you can get a real sense of how your broker complements your trading style…

It can also help you get around the dreaded PDT!

But I’m getting ahead of myself. First, you need to ask some essential questions.

What Are Your Trading Goals?

Before you settle on a broker, take some time to consider your individual goals as a trader.

Clear goals provide motivation. They will also help you decide on the best approach for trading.

Maybe you’re a small-account trader. Your goal might be to earn enough for a car or to supplement your income. A broker that lets you trade OTC stocks might be essential to your penny stocking strategies.

Or you might be saving for retirement. In that case, a broker with advisory services might be more your speed.

What’s the Account Minimum?

This was a big question just a few years ago. The fact that it isn’t anymore shows the influence Robinhood has had on all online stock brokers.

There’s a lot to not like about Robinhood — we’ll get into that later. But lowering the bar on access has been good for many traders.

Brokers used to require varying account minimums. They’d even charge maintenance fees if traders didn’t meet certain requirements.

Now that’s largely a thing of the past, along with commissions.

Even the mighty Interactive Brokers, which used to require a $10,000 account minimum, is down to $0.

This is great for traders with small accounts. I’d still suggest you start out with a few thousand dollars in your account…

Federal law still requires a $2,000 account minimum to open a margin account in a U.S.-based brokerage.

And remember, your number-one goal in trading is to protect your account.

Are There Trade Commissions or Fees?

The online era has brought big changes to the world of commissions.

In the 1980s, the average commission on a trade was about $50…

A new car went for under $10,000, and a gallon of gas was under $1. So $50 per trade was a lot!

When online stock brokers came on the scene in the 1990s, that all changed. Competition pushed commissions lower…

When Robinhood started offering no-cost commissions, that soon became the standard.

That doesn’t mean that everything is free.

There are regulatory fees to factor into all sell orders and options trading. There are borrow fees and margin interest for shorting. And some brokers have gone back to charging commissions on OTC trades…

Robinhood traders don’t have to worry about that. You can only trade listed stocks on Robinhood.

Are There Other Account-Related Trading Fees?

This is getting rarer, as brokers go toward a more standardized pricing model. But there are still some hidden fees to watch out for. 

Be sure to research any account fees from the beginning. It beats getting surprised by them later.

How Fast Are Trade Executions?

One of the sneaky ways that no-commission brokers make money is by selling their order flow. The market makers who buy the right to fulfill orders take their cut from the bid-ask spread on a stock.

Market makers like Citadel make money from traders’ orders, and in return, traders get to trade for free. Everybody wins … right?

Not always. Selling order flow restricts the exchanges that trades can get routed through. 

There’s a raft of protections for traders, like the law that states traders should get the “best executions” available…

Brokers like Robinhood and E-Trade have been fined for not always doing that. 

Does the Broker Offer the Stocks You Want to Trade?

Some brokers, like Robinhood and Webull, don’t have access to OTC stocks.

Others may limit trading for stocks that aren’t up to date on their financial reporting.

Those limitations can greatly affect your trading strategy. Fortunately, you can figure out potential conflicts by doing your research first.

One area that’s more trial and error is the stocks that brokers offer for shorting. Brokers differ in their capacity to locate shares to borrow. 

Again, do your research. Some brokers have better reputations than others. 

Are They Available in Your Country?

If you’re not in the U.S., can you still use an online broker? Absolutely. 

TradeZero, Interactive Brokers, Schwab, Fidelity, and Ameritrade offer their services to traders outside the U.S. However, make sure that your country is listed.

Trading terms may be different for non-American traders. This is one area where you want to be extra sure to read the fine print.

Can You Access Stock Analysis Tools?

All online stock brokers have their own trading platforms. Some are better than others.

The tools that these brokers offer can make a big difference in your trading. This is another category where trial and error comes into play. More on trading tools in a bit…

Consider Your Broker’s Customer Service

Customer service is something many traders overlook when opening accounts. And it’s something that many online stock brokers overlook when they’re cutting corners.

If there’s a system outage, human help might make a big difference. When your services go down as often as Robinhood’s, customer service could save your account.

Ask Around

There’s nothing like a personal review. This is a big part of doing your research.

Traders on forums like Reddit are usually more than happy to share their experiences, good and bad. Articles like this one can help you compare offerings.

This can help you confirm your choice or alert you to potential red flags.

The Top Online Brokers

I won’t go in depth on the top stock brokers here…

If you’re making your decision soon, read our comprehensive top brokers guide first.

Before then, I want to give you an idea of your options. Most traders will be choosing between the following brokers…

TradeZero

TradeZero used to be an offshore broker…

I warn my students about offshore brokers. The lack of regulation can turn a good deal into a bad one…

TradeZero has always been one of the best options. And now that they’ve established a U.S. presence, they’re one of the best brokers on the market.

They offer the standard commission-free trading and competitive fee structure. They really shine when it comes to trading tools and 24/7 customer support. Learn more about our special TradeZero offer here.

Interactive Brokers

Interactive Brokers is one of the gold standards for shorting. 

Their account minimums were the highest in the field at $10,000 to start. They were known as a broker for serious traders.

In 2019, they did away with that minimum as part of a wholesale facelift. It was part of a rebranding effort aimed at making IB more user friendly.

In 2021, they dropped their account inactivity fees. They’re making a play to be a leader in low-cost trading, and they shouldn’t be overlooked.

E-Trade

E-Trade was the first online stock broker. It’s still one of the best.

Despite their “best executions” sanction, E-Trade usually has good executions. They also have some of the most shares to borrow for stocks in the $2–$5 range.

E-Trade has a versatile trading platform. It also has an option to upgrade your account for faster executions.

It’s been in the online stock broking game the longest, and it shows.

TD Ameritrade

TD Ameritrade was recently acquired by Schwab. Its popular thinkorswim trading platform will soon be available to Schwab traders…

Until then, TD Ameritrade traders have exclusive access to one of the best platforms.

It’s one of the most credible brokers out there. That means something when you’re trusting them with your money.

Robinhood

I’m not a big fan of Robinhood…

They won’t let you trade OTC stocks. They’ve also been repeatedly fined for not having their traders’ best interests in mind. I think their trading platform is weaker than most other options.

Some traders will still choose Robinhood. That’s OK. In the end, it’s all about the broker you’re most comfortable with. As long as you’ve done your research, you can trade with anyone you like.

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Conclusion

Choosing an online stock broker is the first step of the rest of your trading life. 

The right broker can help you make the most of every trade. And traders need every advantage they can get.

Take your time doing your research … But don’t stand on the diving board too long.

Choosing a broker isn’t like marriage. It’s like trying out a new car…

Always give your broker a test drive. And there’s no rule that says you can’t take home multiple brokers.

The only rule is knowing what you’re getting into. Good trading plans start with knowing all the angles.

How confident do you feel about picking a broker now? What do you want from your broker? Let me know in the comments!