Until the early nineties, most brokers only offered their services to institutional players and wealthy investors. The tight offering was driven by the high cost of trading, especially the pricey commissions that were charged for executing trades. While the desire for access to the markets has always been there, the prices were just prohibited for most retail investors.

The markets went through a significant change with their modernization and its new business model based on electronic trading. As the cost of operation lowered with the electronic model, many brokers decided to aim for a more significant market share and to market their business for investors of all sizes, breaking the old paradigm of investing.

Nowadays there are principally two major types of brokers in the financial markets: prime and discount brokers. While both offer investors access to the financial markets, they still target different types of clients.

What is the Difference between Prime vs Discount Brokers?

Prime brokers are reserved for institutional and heavyweight investors, especially hedge funds and mutual funds. Due to the size of their investments, these type of players requires a different level of execution. Other services provided by prime brokers includes delivering access to external liquidity and faster execution. While market analysis and commentary used to be a key diferentiator it is becoming more and more common for discount brokers as well.

On the other hand, discount brokers have made the financial markets available to any individual interest in investing, offering a less personalized service with limited human interaction. Discount brokers have benefited from the lower headcount required to operate, ultimately providing better prices to all individual and retail investors.

For most discount brokers their main goal is to deliver access to as many investors as possible and to do so while maintaining fees and commissions as low as possible.

With such a broad range of different brokers currently offering their services internationally, investors should be aware of all the differences in their business and also in pricing. One of the most common mistakes that new traders and investors tend to make in their early career is that they overspend in fees.

If you are an active trader, commissions and fees can harm your portfolio and your performance.

To put into perspective imagine you are an active trader who does in average 10 trades a day.

If your broker charges you $6.95 per round trade (open/close), you would be incurring in more than $1,390 a month in fees alone ($6.95×10 x 20 trading sessions a month avg).

This article will cover the seven best discount brokers available in 2019.

What are the best discount brokers for 2019?

1. Robinhood

Over the last 20 years, the most important tech companies in the world have walked out of Silicon Valley, and Robinhood is no exception. The California based broker, offers its services via a proprietary smartphone app (too simple for active investors), allowing individuals to easily invest in publicly traded companies and ETFs listed on the major U.S. Stock Exchanges.

The most impressive thing out of Robinhood is that there are no fees for stock trading, making it one of the only few commission free brokers available in the US.

Robinhood does not offer technical analysis on the charts, making it a nightmare for anyone with a strategy that relies on many indicators in order to invest/trade. The app follows a minimalistic approach which intends to simplify investing into long term holding and stock/ETF ownership.

Much like American banks represented the old financial America, Robinhood is seen by many as the millennial response to investing and to the overall stock market, an example of this is the “free” share you receive after you open your first account, a single random share of a publicly traded company in the US.

For anyone interested in investing and starting their way into the world of stock trading, Robinhood offers an elegant, minimalistic, and safe app for beginner investors.

Technical Details

  • Minimum Requirements: $200 Minimum Deposit
  • Fees and Commissions: FREE for Stocks, ETFs, Options, and Crypto
  • Best Feature: Commission Free Trading
  • Recommended for: Beginner Investors in the US /  Passive Investors
  • Asset Coverage: Stocks, ETFs, Cryptocurrency
  • Application: Mobile platform only, available on Android and iOS

Pros

  • Free trading for all stocks
  • Multiple integrations for banking deposits
  • The friendliest platform for new traders
  • Fast and fully digital account opening

Cons

  • Lacks research
  • Available only for US and Australian clients
  • Basic data and charts

Note: Investors should be aware that even though Robinhood provides a decent model, it is one of the cases where cheap can end up being more expensive down the road. Since their execution is not the best, investors can find themselves in problems due to slippage.

2. Interactive Brokers

Interactive Brokers have been a synonym with performance for decades, mainly because of the many institutional players and even hedge funds that use their platform for their everyday business.

The company works as a hybrid broker, offering both prime and discount services and essentially allowing investors to trade/invest in almost every type of asset class publicly traded in the global markets. This makes them a weapon of choice by investors of all sizes. For several years the company has been working to renovate their business model, making their platform more accessible for retail investors.

Due to the increase in new retail accounts, the firm has invested in the development of a very detailed and extensive educational library and its own dashboard for analysis sharing between investors and traders.

Nowadays more and more individuals are interested in managing their own investments and portfolios, while Interactive Brokers might not be the friendliest app available it can easily become a cornerstone for any investor who is looking for the next step in their career.

Technical Details

  • Minimum Requirements: $10,000 Minimum Deposit
  • Fees and Commissions: $1 per trade flat rate for stocks, $1 per options contract, $0.85 per futures contract, $14.95 for US mutual funds
  • Best Feature: Options Trading Analysis
  • Recommended for: Experienced Traders
  • Asset Coverage: All publicly traded securities (Stocks, CFDs, Bonds, ETFs, Funds, Commodities, REITs, FX)
  • Application: Desktop and mobile platform available on most devices

Pros

  • Pricing is at the low end of the range, especially margin rates
  • The platform and services are geared for extremely active traders
  • IB’s clients can trade on 120 markets in 31 countries, using 23 currencies

Cons

  • Traders WorkStation, IB’s downloadable platform, can be difficult to use for a new investor
  • IB does not support education accounts (529s) or 401(k)s
  • Very small or inactive accounts may be subject to maintenance fees or data charges

Note: There aren’t not many major problems with Interactive Brokers, their major flaw is their high minimum deposit which spooks many new beginners. Investors should be aware that based on this, IB might not be their first broker of choice but it should be in the top five for anyone looking in stepping up their performance sophistication.

3. TradeStation

TradeStation is a top-notch platform that covers most of the necessities a trader might have. Even though the firm started as a broker focused only on institutional and heavy players, the company has changed its model allowing retail investors to gain access to their state of the art service.

The company offers access to the major financial markets and asset classes in the world, allowing investors to diversify into other markets besides the US.

Investors should keep in mind that TradeStation does not offer portfolio management services, leaving investors under their own management and execution.

While their mobile platform is great, it is definitely not as good as their desktop software. If you are planning on executing transactions from your smartphone on a regular basis, I would recommend going for a Thinkorswim account instead.

Trade Station is not an expensive option when it comes to fees and commissions, but the company charges some very pricey fees for live data packages (final cost will depend on the market). A retail account with full access to major exchanges and asset classes can easily run towards $150 per month.

Technical Details

  • Minimum Requirements: $500 Minimum Deposit
  • Fees and Commissions:  $5 per trade flat rate for stocks, $5+ $0.50 per options contract, $1.5 per futures contract
  • Best Feature: Best technical analysis tools in the market
  • Recommended for: Active traders and passive investors looking for more analysis on their holdings and their portfolio
  • Asset Coverage: All publicly traded securities (Stocks, CFDs, Bonds, ETFs, Funds, Commodities, REITs, FX)
  • Application: Desktop and mobile platform available for both Android and iOS

Pros

  • Comprehensive Features and Tools: many of TradeStation’s tools were previously available only to brokers
  • Comprehensive research
  • Low commissions
  • Advanced tools
  • Active trader community

Cons

  • No commission-free ETFs
  • Minimum balance requirement for active trading platform

Notes: TradeStation is the paradise for any chartist as it provides the best tools offered to retail investors. The desktop platform offers more than 400 different indicators and technical approaches for the major asset classes. Besides technical analysis, the platform also allows investors looking to hold assets long term to analyze the performance of their portfolios and to manage them accordingly.

4. TD Ameritrade – Thinkorswim

TD Ameritrade differentiate themselves from the rest of the discount brokers available globally because of their app and the fact that they are a multinational group that offers its clients multiple other services besides investing.  Some of them are :

  • Banking
  • Life Insurance
  • Retirement and Wealth Management
  • Annuities

Technical and fundamental analysis are the two elements over which most investors develop their strategies, and structure their portfolios. Thinkorswim exceeds expectations with a swiss knife application that not only is powerful but is also intuitive and friendly to all investors.

If you have used a Bloomberg Terminal in the past, you will find yourself close to home with Thinkorswim. On the other hand, if you have never been close to a terminal it might take you some time to understand how to use it, but it is definitely not difficult. In order to mitigate the impact on new users, the firm offers a vast library of educational content which makes it even easier for new users.

This application was designed for investors who are interested in managing the complex structure of analysis and trading. I openly recommend this broker for anyone interested in a sophisticated platform at a very accessible cost. TD Ameritrade is definitely not the cheapest option available in the market, but it represents one of the best overall packages. You will be definitely getting 10x for every extra penny.

Technical Details

  • Minimum Requirements: There is no minimum required to open an account but futures and options trading required a deposit of $2,000
  • Fees and Commissions: $6.95 per trade flat rate for stocks, $6.95+ $0.75 per options contract, $2.25 per futures contract, $49.99 for mutual funds
  • Best Feature: State of the art platform available for most common devices
  • Recommended for: All types of investors. This application is in the sweet spot between a powerful software and a minimalistic and intuitive application
  • Asset Coverage: All publicly traded securities (Stocks, CFDs, Bonds, ETFs, Funds, Commodities, REITs, FX)
  • Application: The Thinkorswim platform represents what any other trading software should emulate

Pros

  •  Think or Swim has some of the best charting tools among brokers
  • Over 400 technical studies and 20 drawing tools available
  • Sophisticated enough for advanced traders but also simple enough for any new beginner
  • Desktop and Mobile apps are synced through a cloud

Cons

  • Slightly higher commissions
  • Broker-assisted trades are more expensive than in any other broker
  • The application has many different windows, this could be overwhelming for some users

5. Fidelity

Fidelity is a multinational company that focuses on financial and investment services worldwide. With more than $2.46 Trillion in assets under management, Fidelity is a giant with 75 years of experience in the financial markets.

Fidelity offers almost every type of asset class and security that is publicly traded in the major US exchanges and also on the OTC Market, allowing investors to reach a wide range of assets.

For any investor looking to get their portfolio managed by a third party, fidelity is their best option. The firm offers a cheaper cost per trade compared to competitors like TD Ameritrade, and it also offers portfolio management services through their PMs. It is important to mention that if you are an active trader who focuses on technical analysis, you might find the software from fidelity to be a little dull compared to TradeStation or Thinkorswim.

If you are interested in the US markets, you should consider fidelity as they offer other products besides brokerage, making it a full package for international and local investors. Some of the complementary services are:

  • Cash Management
  • Derivatives Products
  • Robo-Advisors
  • Active Portfolio Management

Technical Details

  • Minimum Requirements: $2,500 Minimum Deposit
  • Fees and Commissions: Stocks $4.95 per trade flat rate, $4.95 +$0.65 per contract for options
  • Best Feature: Proprietary Funds & ETFs, Active Portfolio Management
  • Recommended for: The app has modules specifically designed for advanced and beginner traders
  • Asset Coverage: All publicly traded securities (Stocks, CFDs, Bonds, ETFs, Funds, Commodities, REITs, FX)
  • Application: Desktop and mobile platform available for most devices

Pros

  • Low-cost trade commissions
  • Commission-free ETFs
  • Excellent customer support
  • Large Selection of Investment Options

Cons

  • High Margin Rates, while Fidelity states its margin rates are low, other brokerage houses like Interactive Brokers have much lower rates
  • Broker-assisted trades have a starting fee of $32.95
  • The platform is overly complicated with no real benefit

6. SaxoBank

SaxoBank is a Danish broker, operating in the UK since 2006. It is important to keep in mind that while the firm is not cheap at all, it is one of the cheapest options when compared to other brokerage houses with a banking license.

The company offers a straightforward service with great and fast execution, a reliable platform and vast levels of liquidity.

When it comes to deciding if this broker is the right one for you, I would first suggest any investor to plan over which asset class and vehicle they are intended to trade. This is particularly important as the company offers a vast range of assets and vehicles but not all of them deliver the same service.

If you are interested in ForexTrading or CFDs, then maybe you should aim for a different broker, but if you want to buy and hold positions of stocks and bonds Saxo Bank delivers a great service at a considerable discount to its competitors.

Worldwide the banking regulation is tougher than what oversees brokers and investment houses, for this reason, SaxoBank represents an extra layer of peace of mind for anyone looking to get the safest place for its money. Overall it is a company with an impressive track record of regulations and high credibility internationally.

Technical Details

  • Minimum Requirements: $2,000 Minimum Deposit
  • Fees and Commissions: $0.01/share; min $9.90, but using VIP pricing the minimum can be as low as $3
  • Best Feature: 
  • Recommended for: Investors interested in Stock Trading internationally
  • Asset Coverage: Stocks, ETFs, CFDs, Forex, Commodities
  • Application: 

Pros

  • Outstanding research
  • Great trading platform
  • Broad product portfolio

Cons

  • Slow account opening
  • No cryptocurrencies
  • Fees, spreads and commissions lack transparency

Frequently Asked Questions

1. Which is the best Discount Broker?

One of the best advises I received when I started my trading career was to not compare my portfolio or my trading account with anyone else. This is keen as there are no two accounts the same, investors have different goals and different risk appetite generally.

For this reason, answering which one is the best discount broker requires to understand what is the investor aiming for as all these firms offer different business models and services.

 

  • For Technical Analysis junkies, I suggest you go for either TradeStation or TD Ameritrade. Both will deliver a class one platform at a very similar and competitive fee scheme.
  • Any other experienced investor might want to go for Individual Brokers for performance and execution (Tradestations works as well).

Do not aim for the most mainstream broker but look for the one the fits your necessities and trading style the best.

2. How much capital do I need to open an account?

Capital requirements will change from broker to broker. The minimum average is around $1,000-$1,500 to open a new trading account. Other brokers from this list will even allow investors interested in investing as little as $200.

While these are the minimum requirements to open an account, investors should be aware these do not mean that with a $200 account you will be able to profitably trade the markets. For active trading I would suggest having at least $2,000-$3,000, this will give enough leg room to learn.

Long term investment through apps like Robinhood will allow investors to start trading and buying stocks from as little as $200.

3. Which is the cheapest Broker?

The cheapest broker from this list is Robinhood as the company offers a zero fee and commissions trading scheme.

4. What type of fees and commissions do most brokers charge?

Unless your discount broker charges you for a different service, most firms will offer flat fees per-trade. Fees usually range between $5-$20. In the past most brokers used to charge a commission based on the value of the shares or the number, this is a perfect example where trading has become more accessible to retail investors. Important to mention that these flat rates can have a cap in certain cases, where transactions with a market price above a certain limit will trigger extra fees (this usually only happen with significantly big transactions, most retail investors will not have to face this).

Some brokers do charge an account maintenance fee, this can vary between $20 to $50 per account annually.

5. Which is the best broker for international investors outside of the US?

Both TradeStation and Interactive Brokers offer a vast range of services and assets at a similarly competitive price. For any international investor, these are the two most powerful options currently available in the market.

 

Conclusion

With the rise in the number of discount brokers, their services have improved and become cheaper in order to attract clients and gain market share. Nowadays the difference between prime and discount brokers is started to be related more to the size moved than the service offered.

The cheap prices and sophisticated service represents a great opportunity for new investors to begin their careers in the markets with all the necessary tools to succeed, at a discount. It is important for investors to do their research and to evaluate all the available options before committing to a broker

Investors and especially active traders should be aware that the performance of a portfolio can be hindered by the fees of a broker or simply because of its service. This is not a decision that can be taken lightly.

About the Author:

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Vidal Arias

Vidal is an experienced Strategist and Portfolio Manager with a keen interest and passion for the financial markets. During his career, he has developed excellent market timing skills, focusing mainly on the macro analysis of the US Equity Market and the overall US Financial Market. He started his career as a financial analyst for a major American bank and continued his way into the trading desk as a Sr. Trader and later as a Portfolio Manager for an Offshore Hedgefund in Europe. Linkedin: vidalarias Email: vidal@dojiventure.com