The Complete Guide to Choosing an Online Stock Broker

Profitable investing requires you use a brokerage service that aligns with your investing goals, educational needs and learning style. Especially for new investors, selecting the best online stock broker that fits your needs can mean the difference between an exciting new income stream and frustrating disappointment.

While there’s no sure-fire way to guarantee investment returns, there is a way to set yourself up for success by selecting the online brokerage that best suits your needs. In this guide, we’ll break down everything you should look for in your ideal brokerage, from the obvious (like whether or not the platform allows you to trade the securities you’re interested in) to the not-so-obvious (like how easy it is to get support from an actual human when you need it).

Step 1: Know Your Needs

Before you start clicking on brokerage ads, take a moment to hone in on what’s most important to you in a trading platform. The answer will be slightly different depending on your investment goals and where you are in the investment learning curve.

If you’re just starting out, you may prioritize features like basic educational resources, comprehensive glossaries, easy access to support staff, and the ability to place practice trades before you start playing with real money.

If you have some investment experience already under your belt, but you’re looking to get serious, you may want more high-level education and opinion-based resources authored by professional investors and analysts, as well as a good selection of fundamental and technical data.

A truly experienced investor, perhaps someone that’s executed hundreds of trades already but is looking for a new brokerage, is going to prioritize advanced charting capabilities, conditional order options, and the ability to trade derivatives, mutual funds, commodities, and fixed-income securities, as well as stocks.

Be honest with yourself about where you are right now in your investing journey and where you want to go. Are you looking to establish a retirement fund and focus on passive investments that will generate tax-free income in an IRA or 401(k)? Do you want to try your hand at day-trading but don’t know where to start? Do you like the idea of tweaking and tailoring your own portfolio, or are you willing to pay a professional to ensure it’s done right?

Depending on which path you want to follow, there may be many more questions you’ll need to answer along the way as you gain experience and refine your goals. For now, however, start with these four crucial considerations to help you determine which of the brokerage features we discuss below will be most important to you. To help get those analytical juices flowing, we’ve included several sample questions under each broader topic:

Are You an Active or Passive Investor?

Do you want to be super hands-on and execute day or swing trades? Do you see yourself eventually leaving the 9-to-5 grind and becoming a full-time investor? Or, instead, do you want to find a few solid investments to hold for the long haul with little or no day-to-day interaction?

What Kind of Trades Do You Want to Execute?

Are you going to be the type of investor who knows what they want to do and just needs a platform that makes it easy and quick to execute trades, or do you want a broker with a broader range of resources to help you identify opportunities? What kind of securities are you focused on? Stocks, mutual funds, ETFs? If you are more advanced, do you also want to trade options, futures, and fixed-income securities? What about margin trading? Do you need access to conditional orders, extended-hours trading, and automated trading options?

What Kind of Help Do You Want?

Do you want to go the DIY route, learn how to interpret charts and financial data to find and execute your own trades, or would you prefer to hire a pro? If you want to do it yourself, where are you on the learning curve? What sort of resources will you need to further your knowledge? Will you need easy access to support personnel, or are you able to learn what you need to know through online educational resources? Are you happy to execute trades online, or will you want to call in to have a broker assist you with the process?

What Are Your Investing Goals?

Why are you choosing to invest? Are you trying to supplement your regular income to improve your current standard of living? Is there a specific event or expense you want to fund? Do you intend for this to eventually become your primary income source? Are you trying to build up retirement savings and, if so, do you already have a retirement account or will you want to open a new one with your chosen brokerage?

There are no wrong answers to these questions. Be honest with yourself about how much time, energy, and effort you’re willing and able to put into your investments. Your answers may change over time, and that’s ok. Don’t try to anticipate all your needs and goals for the rest of your life. Just start with where you are right now.

Step 2: Narrow the Field

Now that you have a clear idea of what your investment goals are and what basic services you’ll look for in your ideal brokerage, it’s time to whittle down your options a bit. While there are certain brokerage features that will be more important for some investors than for others, there are a few things any reputable online brokerage should have. With such a wide range of available options, checking on these basic necessities is a great way to narrow the field quickly.

Stock Broker Regulation and Trust

Is the Brokerage a Member of the Securities Investor Protection Corporation (SIPC)?

There will typically be some kind of notation or disclaimer at the bottom of the home page. You can quickly look up the brokerage on the SIPC website.

Is the Brokerage a Member of the Financial Industry Regulatory Authority (FINRA)?

This should also be very clearly noted in an easy-to-find location. You can look up brokerages on FINRA’s BrokerCheck website.

Is the Brokerage Covered by the Federal Deposit Insurance Corporation (FDIC)?

Investment products—such as brokerage or retirement accounts that invest in stocks, bonds, options, and annuities—are not FDIC insured, because the value of investments cannot be guaranteed. If the brokerage offers CDs, Money Market Deposit Accounts (MMDAs), checking, or savings accounts, however, they should be fully backed by the FDIC.

What Kind of Insurance Do They Provide to Protect You in Case the Company Fails?

As a member of the SIPC, the company should have insurance with a per-customer limit of at least $500,000, with $250,000 available for cash claims.2 If the company adheres to the Customer Protection Rule, it should also provide additional coverage above and beyond the basic requirements of the SIPC.

Is There Any Kind of Guarantee of Protection Against Fraud?

Will the company reimburse you for losses resulting from fraud? Make sure you double-check what the brokerage requires of you in order for you to be reimbursed. Find out if you have to provide any documentation or take specific precautions to protect yourself.

What Are Current Customers Saying?

Try searching online for consumer reviews of the brokerage, using keywords like “insurance claim,” “fraud protection” and “customer service.” Of course, online reviews should typically be taken with a grain of salt – some people just like to complain. However, if there are several users from different sites all lodging the same complaint then you may want to investigate further.

Online Security and Account Protection

It’s important to know how well a brokerage helps you protect your information.

Does the Brokerage Website Offer Two-Factor Authentication?

Do you have the option of activating a security feature in addition to your password? Common options can include answering security questions, receiving unique, time-sensitive codes via text or email, or using a physical security key that slots into your USB port.

What Kind of Technology Does the Broker Use to Keep Your Account Safe?

Find out if the broker uses encryption or “cookies,” and if it clearly explains how it uses them to protect your account information and how they work.

Does the Company Ever Sell Customer Information to Third-Parties (like Advertisers)?

The answer should definitely be no.

Brokerage Account Offerings

Since the types of tools you need will depend on your goals, you should also do a quick check for the following items to weed out brokerages that simply won’t meet your needs.

What Kinds of Accounts Does the Broker Offer Besides Standard (Taxable) Investment Accounts?

For example, if you have dependents, find out if you can open an Education Savings Account (ESA) or a custodial account for your child or other dependents.

Can You Open a Retirement Account?

Look into whether the broker offers Roth or traditional retirement accounts and if you can roll over an existing 401k or IRA.

Are There Different Products for Different Investing Goals?

For example, find out if the broker offers managed accounts. Also, find out if there investment minimums for different types of accounts.

Can You Manage Retirement Accounts for Employees Through the Brokerage?

This may apply if you’re a small business owner. These types of accounts include SIMPLE or SEP IRAs.

Does the Brokerage Offer Self-Directed IRAs or Solo 401k Options?

This applies if the only employee in your small business is you.

Step 3: Figure Out the Fees

While there may be other things that matter more to you than fees, you should start out with a pretty clear idea of how much you’ll pay to use any particular brokerage.

For some, a small premium may be justifiable if the platform offers features that its cheaper competitors lack. In general, however, you want to lose as little of your investment returns as possible to accounting fees and trading commissions.

By starting with the bottom line, you can easily determine which stockbrokers are too pricey to consider and which simply aren’t compatible with the type of investment activity you’re focused on.

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