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How to Evaluate Online Brokers – Which Brokerage Is For You?

by Contributor

There are a lot of options available to someone looking for an online stock broker. Most of these brokers are cost–competitive and there are many things you have to keep in mind when selecting the right broker for you. Here are some key things to consider when evaluating an online broker.

How to Evaluate Online Brokers

Cost: This is the most important factor and you need to compare the cost of transactions across certain categories such as:

  • Market or Limit Trade
  • Options Trade
  • Automatic Investing
  • Buying No Load Mutual Funds
  • ETFs

Evaluate online brokers - compare investing toolsTools and services. Compare the tools and services offered by brokerages, including educational and training resources, advanced tracking, real time quotes, cost basis tracking for taxes, and other tools.

Price of Assisted Trades: Some brokers charge you extra if you call up and place an order. If you intend to call up and trade, then make sure you find out what they charge on phone trades.

Account Minimums and Differential Pricing: Some brokers require you to keep a minimum balance and then still others would charge you a lower price if you maintain a certain balance or trade above a certain number. For example, E*Trade charges $9.99 per trade, or $7.99 when you make at least 150 trades per quarter.

Inactivity Fee: Some brokers charge you inactivity fee if you don’t trade for a quarter or sometimes even a month. If you are not a regular trader – watch out for the inactivity fee.

Dividend Reinvestment Plans: Some brokers allow you to reinvest dividends and hold fractional shares in a company. This helps you gain the benefits of compounding your dividend returns over longer periods of time.

Automatic Investments: If you are not a market timer and are happy to invest a certain amount in fixed securities recursively, then you need to find out whether the broker offers you the convenience of automatic investment. You can select a schedule and the broker will automatically execute your trade according to that schedule.

Availability of Certain ETFs: For a long time, I assumed that you can buy any ETF through any broker. I was surprised to see that there were certain ETFs that weren’t available through my broker. If you like to research and buy stocks and funds of a slightly exotic nature – like something that replicates the Australian Dollar or Gold funds, then you will need to find whether your broker offers such funds or not.

Customer Service: Read reviews about the brokers you are screening and read about people’s experiences in dealing with them. Reading reviews on forums sometimes gives valuable insight about how a broker really acts, when you need them.

Promotional Offers: Some brokers give you cash back if you switch to them from some other broker. If you already have an account and are looking to move to another broker, then be sure to check out the rewards for moving out. Here are some brokerage coupon and promo codes that can get you some free trades or free bonus money when you open a new account.

tradeking-150-transfer-offer

TradeKing will reimburse new customers up to $150 to transfer their assets to TradeKing. Be sure to visit the the TradeKing site for more information about the TradeKing Asset Transfer program, or click the picture below for more information.

Special Rebates: Sharebuilder has certain special rebates for Costco Members and so if you have a certain membership already and a broker gives you some special offers on that – be sure to compare the brokers in this new light.

Choose your brokerage base on your needs, not a catchy slogan

These are some factors that I think are important to consider while selecting a broker. Different users will have different needs and based on what is important to you – evaluate the various brokerages that offer their services.

Online Brokerage Reviews

Here are some recent reviews of online brokers:

This guest post is courtesy of Manshu Verma from OneMint, a website with the vision of “creating wealth for everyone.” If you liked this article and wish to read more about the economy, stocks, investing, credit cards or other topics on personal finance, please consider subscribing to his website.


Published or updated January 6, 2014.
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{ 9 comments… read them below or add one }

1 DDFD at DivorcedDadFrugalDad

Nice analysis!

My view is that if you know your style it will help you choose wisely, are you a daytrader or a buy and hold kind of guy or gal?

Reply

2 My Journey

I used to use SogoTrade cause they were the cheapest and allowed for Dividend Reinvestment and Fractional shares….and boom they decided to stop so now I have everything at TradeKing.

Make sure of the features a site has in conjunction with the price per trade.

Reply

3 Manshu

Thanks Ryan for letting me guest post of your site!

@DFDD — I am a buy and hold kind of guy so the 10 bucks that Sharebuilder charge me per trade doesn’t really bother me. But I do feel that I should look for something else for trading options. May even try out Tradeking.

Reply

4 Ryan

I am a buy/hold investor for the most part, and I have accounts with TradeKing and Zecco. I opened the account at Zecco when the trades were free for everyone. Now I primarily invest with TradeKing because I prefer their site layout and user interface, as well as a few other features such as free tax tracking (Zecco charges for this). The trades cost about $.50 more, but the added features are worth it for my situation. Zecco may be a better option for people who trade more frequently or have a large portfolio because they offer free trades under certain circumstances. The articles explaining the differences are linked in the article above if anyone is interested in the details.

Reply

5 Wojciech @ Fiscal Fizzle

I use Schwab almost exclusively now, although I’ve had accounts at most of the other brokerages at some point in the last 10 years. I invest primarily in no-fee funds, so costs were not that much of an issue for me – the choice of funds was.

One thing I found particularly helpful when deciding on a brokerage were Consumer Reports ratings. They were pretty much in line with my own experience of the various companies.

Reply

6 Ryan

Thanks for the tips, Wojciech! I haven’t checked out Consumer Reports for brokerages yet, but I did some online research on blogs and forums. I curerntly use Zecco and TradeKing, but prefer TradeKing overall.

Reply

7 Rajeev Singh

I think there are few more points which can help one evaluate the services of a broker. They are
1. His research reports/support and its accuracy history.
2. The feedback about its services from the existing customers.

Reply

8 Tee

Hey Ryan, I wanted to find out if you know any good online broker that can be used to buy commodities (oil, cocoa, etc). And does Zecco trade mutual funds. Thank for the great website.

Reply

9 Ryan

Tee, Zecco and most discount broker offer a wide variety of mutual funds. I’m not sure which (if any) discount brokers offer commodities. However, you may find they offer ETFs or mutual funds based on commodities.

Reply

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