Seems like life in 2020 is all about choices, like … what are the top brokers for online trading in 2020?
There are a ton of options out there. So how do you choose one that’s right for you?
Thanks to technology, trading the stock market is more accessible to more people than ever before. Pretty much all you need is a computer, an internet connection, and an online stockbroker.
These days, most people have the first two locked down … But choosing a broker can make newbies anxious. Commissions, account minimums, available stocks — there’s a lot to consider.
Take a deep breath … you’re in the right place. Today, I’ll give you the lowdown. Here’s what you need to know when choosing a top broker for online trading.
Let’s get to it!
Table of Contents
- 1 What Is a Stock Broker?
- 2 What Do You Need to Open an Online Brokerage Account?
- 3 How to Trade Stocks Online
- 4 11 Top Online Stock Brokers
- 5 How to Pick the Right Online Stock Broker for Beginners
- 6 Frequently Asked Questions about Online Stock Trading
- 6.1 How Much Money Do I Need to Start Online Stock Trading?
- 6.2 Should I Just Choose the Cheapest Online Broker?
- 6.3 What Type of Brokerage Account Should I Choose?
- 6.4 Is My Money Insured with Online Brokers?
- 6.5 Can I Open a Brokerage Account with Bad Credit?
- 6.6 How Do I Decide If a Brokerage Firm Is Right for Me?
- 7 Conclusion
- 8 One Platform. One System. Every Tool
What Is a Stock Broker?
To trade stocks, the first thing you’ll need is access to the markets. An online stock broker can give you that access and facilitate your trades.
Back in the day, choices were limited. But now it seems like there are almost too many to choose from.
No doubt, some brokers are better than others. It also depends on your trading strategies. Some will better fit particular trading patterns or setups.
Take your time in choosing a broker. It’s important that you do your research. Pick a broker that you trust with your hard-earned money and satisfies your personal trading needs.
What Do You Need to Open an Online Brokerage Account?
Opening a brokerage account in 2020 is super simple.
Follow your broker’s online instructions to open a new account. Each broker has a different process. They’ll all ask for personal information and have account minimums.
You can also choose between two account types: cash or margin. Each account type has pros and cons. Know what you’re getting into. Check out this post for more details.
Once you transfer the funds to your account, you’re all set.
How to Trade Stocks Online
Once you pick your broker, you can look up stocks and start creating your watchlists.
To actually buy shares, you’ll have to put in either a market or limit order. In StocksToTrade Pro, we recommend almost always opening up limit orders. It’s one way to potentially have more control over your price entries.
After your order goes through, that’s it … You bought your first stock!
11 Top Online Stock Brokers
Like I said earlier, there are many brokers to choose from. To get you started, here’s a list. Any of these online brokers can be a good candidate for beginning traders. But as always, do your research.
Note that StocksToTrade now offers broker integration with some of the brokers mentioned below but otherwise has no other affiliate relationship. Let’s get to that list…
1. TD Ameritrade
TD Ameritrade is considered an innovator in the broker world. It first started offering online trading in 1995 when it acquired K. Aufhauser & Co., the first firm to offer online trading.
Why might TD Ameritrade be a good choice for newbies? It offers a large number of resources to members. That includes educational materials, instructional videos, tutorials, and more.
In 2009, TD Ameritrade purchased thinkorswim. This robust trading platform is currently free to TD Ameritrade members.
There’s no account balance minimum to get started and it also has a strong focus on customer service. It has decent resources and support.
Quick heads up: In 2019, Charles Schwab started the process of acquiring TD Ameritrade. The deal should go through in the second half of 2020.
Fidelity is another reputable broker that I think can be newbie friendly.
It offers educational resources through online guides and webinars. If you have a local Fidelity branch office, you can take advantage of in-person guidance and seminars.
It also offers research resources from 20 third-party providers, including Rocognia and Thomson Reuters. If fundamentals are important to your trading style, this broker may be worth a closer look.
Fidelity has a free trading platform called Active Trader Pro. Traders can access it through a downloadable desktop app or website.
This broker receives high marks for customer service and offers live chat support 24/7.
If international trading is your thing, Fidelity provides trading in 25 countries. And it has the flexibility to settle in either U.S. dollars or the local currency of your trade.
3. Charles Schwab
You’ve likely heard of Charles Schwab. It’s one of the largest brokers in the U.S.
Like all the brokers that made my list, it has a good mix of quality customer service and research resources.
One thing that sets it apart is its dedication to low-cost trading. Charles Schwab has been hailed as a consistent advocate for individual investors. It was the first big brokerage to eliminate commissions on online stock and ETF trades. That sparked the commission-free revolution of late 2019.
It provides three trading platforms to members through browser, desktop, and mobile apps.
E-Trade is one of the most popular online brokers. It has a reputation as a pioneer in online trading.
Beyond its educational resources and trading tools, it shines in both mobile trading and options. It has two mobile apps: E-Trade Mobile and Power E-Trade.
E-Trade Mobile is supported by Apple Watch and includes features like live streaming, customized stock screening, third-party research ratings, and a customizable dashboard.
Power E-Trade provides a user-friendly and clean charting experience along with 40 different charting indicators. It can also be a good app for learning options trading.
In February 2020, Morgan Stanley announced it’s buying E-Trade for $13 billion.
5. Merrill Edge
If you’re a Bank of America (BOA) customer, Merrill Edge might be a good beginning option for you.
Its integrated mobile experience will allow you to pay your BOA credit card and place trades.
Merrill Edge will also allow you to visit any of its 2,000+ BOA locations for face-to-face support.
6. Interactive Brokers
Interactive Brokers (IB) is a long-time favorite of seasoned traders. Traders report liking it for its good trade executions and low commission costs.
Newbie traders were once scared away by the $10,000 account balance minimum. But in 2019, IB got rid of that policy, making way for smaller accounts.
IB reportedly has an easy-to-use trading platform with robust features.
If shorting stocks is part of your game plan, IB is better than most when it comes to borrowing shares for this strategy.
Tradier is a great option for newbies who want to learn to trade with real money and manage costs.
You won’t get the same benefits as some of the brokers on this list. But with flat fees of $14.99/month, you can control your costs as you test setups and build your account. That’s a big deal if you’re just starting.
Tradier also integrates with the StocksToTrade platform. With this broker, you can enter and exit trades from the same platform you use to research and find your setups.
8. Ally Invest
Ally started its business under the name of General Motors Acceptance Corp (GMAC). It originally provided financing for the automotive industry. Over time, it expanded into online banking.
GMAC changed its name to Ally Financial in 2010. And in 2016, after acquiring the online broker TradeKing Group, added online brokerage to its services.
Ally is known for its progressive digital banking features and customer service.
Firstrade is based in Flushing, New York. This broker is known for its easy-to-use website and mobile app.
It provides good customer service and support in three different languages: English, Mandarin, and Cantonese.
It doesn’t have all the robust features and resources as brokers on this list … But it can be a good start for newbies.
TradeStation is considered a trading technology leader. It attracts all kinds of traders — from casual to seasoned pros.
Its desktop platform TradeStation 10 is pretty robust and rivaled only by TD Ameritrade’s thinkorswim.
Tradestation also has a mobile app for stocks and options trading.
11. Zacks Trade
Zacks Trade is unique in the discount broker world. Why? It offers free broker-assisted trades.
It offers a lot of the same features as some of the above brokers but at slightly higher commission prices. That can mean better customer service according to reviews.
This broker can be a good fit for traders who want broker-assisted trades to back up their online trades.
How to Pick the Right Online Stock Broker for Beginners
Again, it’s all about doing your research before you pick a broker. Here are a few key things to consider before you pick an online broker…
One reason these 11 brokers made my list is that they’re widely known. They all have good reputations. Think twice before you choose a hot new broker that doesn’t have a solid history or track record…
You risk losing your money if your broker suddenly shuts down — especially if that broker is overseas. Of course, there are no guarantees in this business. But you can take some comfort knowing your broker is licensed, insured, and follows regulations. Do your homework.
Every trader’s different. You have to know your own needs. What’s important to you?
If you’re a beginner, you may want to compare educational resources and the quality of customer support.
If you plan to trade in premarket or after hours, you’ll want to check your broker’s availability and fee schedule for extended-hours trading.
Some brokers provide better access for borrowing shares for short selling strategies.
No broker is perfect. But the more you know about your trading style, the better prepared you’ll be to choose a broker that’s right for you.
Don’t stress it, though. If you’re a newbie, you won’t know a lot about your trading style. The brokers on this list can be a good starting point.
Frequently Asked Questions about Online Stock Trading
I get a lot of questions about online stock trading. Here are a few of the most common.
How Much Money Do I Need to Start Online Stock Trading?
Well, that depends on how much you can afford and your broker. Brokers have been lowering account minimums over the past few years. Some will let you open an account without a minimum balance.
Second, the amount you need to start with also depends on the type of account you open. For example, Tradier doesn’t have a minimum for opening a cash account. But if you want to open a margin account, it requires a minimum of $2,000.
Should I Just Choose the Cheapest Online Broker?
Remember this saying: “nothing in this world is free…”
Price shouldn’t be the only factor for your broker decision. Some brokers may have higher fees but also come with features or tools that can help you maximize your trading style.
If you’re just starting and cost is the most important thing to you, Tradier can be a great option to minimize costs as you learn.
What Type of Brokerage Account Should I Choose?
There are two types of accounts you can choose from for your broker account: margin and cash. There are pros and cons for both.
A margin account is the riskier of the two. It allows traders to trade stocks with borrowed funds.
That could mean a greater potential for profits. Also, traders need a margin account if they plan on shorting any stocks.
But the downside of a margin account is hefty. Traders with these accounts often expose themselves to far more risk. If you trade on margin, you can actually lose more money than you have in your account.
Margin accounts under $25,000 are subject to the pattern day trader (PDT) rules. That limits traders to no more than three trades in a rolling five business day time frame.
Traders using a cash account, on the other hand, don’t generally have to worry about the PDT rules. And it can be safer than a margin account because you limit your losses. That’s key to trading smarter.
But if you trade with a cash account, you can’t use shorting strategies. That’s probably better if you’re a newbie. Shorting is not an easy strategy.
Which account type you choose depends on your risk tolerance, the amount of capital you have, and how often you plan to trade.
Is My Money Insured with Online Brokers?
Short answer: yes. The Securities Investor Protection Corporation (SIPC) protects brokerage accounts.
SIPC covers up to $500,000 per customer for lost or missing assets at an institution. $250,000 of that total can be applied to protect cash that isn’t invested in securities.
But SPIC doesn’t cover losses due to account hacking, worthless stocks, or bad investment advice.
Can I Open a Brokerage Account with Bad Credit?
That depends on what type of account you want to open.
With a cash account, you only trade with money that you deposit. It doesn’t matter what your credit score is.
With a margin account, however, the broker may be lending you money. Expect a credit check. If you have terrible credit, you could still be approved. It depends on the broker’s requirements.
How Do I Decide If a Brokerage Firm Is Right for Me?
Learning to trade is a long-term commitment. As you study and practice, you’ll continually learn about yourself and your trading style. What you need from your broker can change along the way.
Pick a broker that you think fits your current situation. Then as your trading strategies and needs change, you can adapt. Choosing a broker doesn’t have to be a permanent decision, and you can also have more than one.
There are so many online brokers to choose from, it can be overwhelming to make a choice. But it’s not as complicated as you may think.
Start doing some research. Compare the pros and cons of each, and then make a choice.
Remember … you can always paper trade the stock market for as long as you want before using real money. Many successful traders start that way.
What brokers do you use? Post them in the comments below. I’d love to hear what you think!