These days online brokers are far more than just websites that give you the ability to enter buy and sell orders. Actually, many of the best brokerage firms now offer sophisticated online trading platforms. These trading platforms are even comparable to the systems used by professional traders. You don’t necessarily have to use a broker to buy and sell shares. However, it’s certainly a lot easier to do so with an online broker. Just try Googling “how to buy stocks online without a broker”, and then decide if you really want to do your trading without a broker.
So, once you have decided to open a brokerage account, you’ll need to choose a broker. Before rushing out to open an account, it’s worth familiarizing yourself with the ways one broker may differ from another. This guide will help you understand some of the factors to consider when choosing an online broker.
- What is an online broker?
- Decide what type of investor or trader you are
- How to find the best online broker based on your own needs
- Understand each online broker’s requirements
- What software and tools should your broker offer?
- Trading fees and commissions
- Online broker regulation and security
- Other factors to consider when choosing a broker
What is an online broker?
Traditionally stock brokers were members of stock exchanges and executed trades on behalf of their clients. The structure of the market has changed a little over the years, but essentially the service a broker offers is still the same. The difference is that instead of taking an order over the phone and then physically going onto a trading floor and executing the trade, an online broker uses a secure website to capture your order and then routes that order to an exchange server where it is automatically executed. The other important function of a broker is providing their customers with live stock prices (real time quotes), including the price of the last trade, the highest and lowest prices of the day, and the prices of the best bids and offers. These are essential pieces of information for anyone engaging in online trading. An online stock broker will also provide lots of other trading tools to make life easier. All broker websites will give their clients up to date stock trading account values, the profit and loss for each position, and the amount of cash they have available to trade. Most brokers also offer tools such as charts and watchlists to help traders make decisions. Some also offer research, the ability for clients to trade with leverage (margin trading) and sell stock short (short selling). Stock brokers are increasingly giving clients the ability to do their online trading in other markets and around the world too.
How to find the best online broker based on your own needs
To find the best online broker for your personal needs, you’ll need to identify the features that are important to you. You can then list all the brokers that offer those features. There are lots of websites that allow you to compare online stock brokers. You can have a look at a few of them to make an informed decision. Some sites are paid to promote certain brokers, so try to stick to factual information, and then check that information on the brokers site. Most online brokers offer a lot of sophisticated looking trading tools. However, these tools may not be ideal for those just starting out with online trading. The best online stock broker for beginners is probably not the one with the most functionality. Too many tools and features may well confuse beginners and lead to prompt them to overtrade. As you compare online stock brokers, you should rather focus on the simplicity of the fee schedule and the amount of educational material available. If the fee structure is complicated, there’s a good chance you will end up paying hidden fees down the line. Any online stock trader will want to be able to look at charts, but these do not have to be complicated. Again, the more tools and indicators, the more chance there is that you’ll get confused.
Best Broker for Social Trading 2019
24option.com is a multi-trading platform, that provides different trading options for their users. If you’re a soccer or football fan, you will probably have seen that 24Option sponsors the club Juventus. 24Option is actually improving in its educational concept, and they now have an educational hub, providing tools and a library of seminars, webinars, and daily news.
As a company of Richfield Capital Limited, 24 Option is regulated by CySEC under the license number 207/13. 24Option was actually one of the first brokers to introduce CFDs trading with cryptocurrencies in the market. Unlike other options, 24Option only offers trading in the financial markets with CFD and Binary Options.
Markets covered by 24Option
Commodities (CFD) Cryptocurrencies (CFD)
24Option’s most important Features:
- Trade with CFD on Commodities, Crypto, Forex, Stocks and Cannabis Stocks
- Trading with Leverage
- CySEC regulated
- Live Chat
- Advanced Trading Platform
- Education Hub
- Inactivity Fees
- Overnight Fees
- Too many Different Account Types
- High Spreads
24Option’s Payment Methods:
Founded in 2008, Markets.com is owned by Safecap Investments Limited and is a subsidiary company of Playtech which is one of the leading brokers in the Forex industry.
Their platform is regulated by CySEC, FSCA, and ASIC and is also considered as one of the most reliable brokers in the world.
Their platform counts with over 5 million registered users accounts, and is mostly known for offering more than 2000 instruments to choose to trade and its $100 USD minimum deposit.
Markets covered by Markets.com
Commodities (CFD) Cryptocurrencies (CFD)
Shares (CFD) Indices
Market.com’s most important Features:
- Trade more with CFD more than 2000 instruments on Commodities, Crypto, Forex, Stocks, Bonds, ETFs
- Trading with Leverage
- CySEC and FSCA regulated
- Advanced Trading Platform
- $100 minimum deposit
- Multiple language support
- ECN trading unavailable
- Only LiveChat support
Market.com’s Payment Methods:
Online broker for active traders
For over 40 years TD Ameritrade is offering powerful trading tools and professional guidance to traders and investors. This online broker has everything that active traders or long-term investors need. TD Ameritrade provides customers with web, mobile, and downloadable trading platforms, stock research, real-time quotes, access to various markets and much more.
Online broker for professional traders
Interactive Brokers is the ideal online broker for professional traders. IB gives you direct market access to stocks, options, futures, forex, bonds, everything from one account with an industry-leading commissions schedule for higher returns. With IB you can optimize your trading speed and efficiency with a powerful suite of trading platforms, advanced algos and trading tools.
Options trading online broker
With E*TRADE you’ll have access to powerful, yet easy-to-use tools to research ideas, test strategies, and trade various markets and instruments. With their award-winning OptionsHouse platform you can enjoy a powerful trading experience on any web browser or tablet. In addition, E*TRADE has some of the lowest fees in the market so you can invest in what you want, whenever you want.
Other Types of Online Brokers
Day trading is the buying and selling of any financial instrument on the same trading day and is characterized on the closing of all positions by the end of the trading day. The day trading strategy suits speculators who aim to earn a profit on short term price fluctuations. Unlike day trading via exchanges that require a commission for any transaction, CFDs brokers do not charge any fee other than a buy/sell spread.
Best Brokers for Forex Trading
Forex trading is the exchange of one currency for another based on factors that can signal the pair’s direction. Forex trading, also known as foreign exchange trading, occurs on a decentralized global market where all the currencies are being traded.
2. Forex.com – Best for US Residents
Over the years more and more individuals have become interested in becoming part of the forex market, while access to the market has been relatively accessible in Europe and Asia, in the US the story has been completely different. Due to a very strict and demanding regulator, not many firms have gotten access to offer their services to US residents.
Seen a broker offering forex trading in the US is more meaningful than in Europe, it is literally harder than achieving a licensed bank in most European countries. Forex.com is one of the few companies with an active forex license in the US. The reason for the success of this firm is all the backing they receive from their parent company, Gain Capital. Starting a new company is easy when you are one of the largest prime brokers in the country.
Keep in mind that one of the key elements that will determine your success in the markets is who is your broker, your main goal is to always aim for a company that will take care of you and your business. Reliability is one of the biggest issues most individuals have with forex brokers, you need to be comfortable knowing that when the time comes you will be able to get in or out of trades lightning fast!
If you are interested in learning about forex and you are a US Citizen or Resident, you should look at Forex.com as one of the best options you will find in the market.
Please be aware that as a prime broker the company offers a package on which pricing and fees are pegged to the volume traded, this means that your trading activity will determine how much your spread and commissions are. This is a great benefit for anyone operating with a very active strategy as prices will drop considerably.
1. TD Ameritrade – US Friendly
TD Ameritrade offers a professional way to trade ETF’s. With more than 300 commission-free ETF’s, advanced tools, ETF’s education resources and two different trading platform (web and desktop), TD Ameritrade is a good choice for those who wish to trade ETF’s. Moreover, TD Ameritrade has a very clear ETF’s directory sorted by category, fund family and a market cap that helps traders to find the best ETF to buy.
Best Brokers for Options Trading
An option contract is an agreement between a buyer and a seller to exchange an underlying asset like a security, index, ETF, currencies, indices, and commodities at a predetermined price and on a specific predetermined time. Options trading can be used for many purposes such as hedging, long term & short term investment, and speculation.
1. Ally Invest – US Friendly
Ally Invest is known for its low commission costs in comparison to other brokers in the industry. While most brokers charge $5-$7 for base fee and $0.75 per contract fee, Ally Invest charge only $3.95 and $0.50.
The broker also offers great tools for options trading that include a profit/loss graph, probability calculator, options chain and research and market data. Ally’s options trading platform is web-based and provides all the necessary tools, in particular for day and swing trading.
2. RobinHood – US Friendly
Robinhood is free-trading app that shook up the financial industry in 2018 and recently rolled out options trading with no commissions. Really, commission free.
Take note that Robinhood provides a mobile trading app and does not support a desktop trading platform so the Robinhood commission-free service is mostly suitable for beginners who wish to learn how to trade options or experienced traders that take swing/long term positions.
Decide what type of investor or trader you are
If you are still learning how to trade stocks online, you shouldn’t rush into choosing a broker. Everyone eventually develops their own trading style. Each strategy and trading style will have different needs when it comes to choosing a broker. You need to determine if you’re an investor (long term investing) or active trader (short term trading). Those concentrating on online investment will need less in the way of sophisticated trading tools and more in the way of fundamental research. Investors can also keep their costs to a minimum if they are not using a lot of the tools offered by a broker. If you are more of an investor, you may want to consider exchange-traded funds and mutual funds instead of active trading. Make sure the broker you choose gives you access to those instruments.
More active traders often look for liquid markets like forex trading or other markets that are suitable for short term trading. In that case they may want to find a broker that offers currencies and maybe even CFDs on commodities and indices too. Many brokers offer CFDs on stocks, which are great for short term trading as well. However, if you are focusing on longer term stock investing, it’s best to stick to traditional stock trading accounts. More advanced traders often look to options trading to have more flexibility and futures trading to allow them to hedge their positions. If you think you will reach that level, it’s worth considering online brokers that offer trading with options and futures. If you read a few books and articles about online trading or stock trading for beginners, you will probably begin to identify with certain approaches. Until then, it’s worth using demo accounts from a handful of brokers to determine which is the best online stock broker for your own trading style.
Understand each online broker’s requirements
Every broker offers a slightly different range of instruments, charges different fees and requires customers to deposit and maintain a specific amount of capital in their online trading account. The best online broker for beginners will cater for those that have a relatively small amount of capital to invest and do not intend to trade very actively, at least in the beginning. This gives beginners time to learn trading while they avoid taking too much risk. You should avoid brokers that entice you to deposit more than you can really afford to put at risk, and that offer bonuses if you execute a certain number of trades every month. Your trading should be dictated by a well thought out strategy and a trading plan, not by incentives to trade more. A dedicated stock broker will usually only offer stocks and perhaps options on stocks. However, as technology has brought the cost of operating an online brokerage service down, many brokers now offer a wider range of instruments. If you are only planning to buy stocks online, it’s usually best to stick to a broker that focuses on stocks. Trading stocks and ETFs is a better way to get started, as forex and commodity markets tend to move faster and require more expertise. You should always choose the markets to trade based on your trading skills.
What software and tools should your broker offer?
Most online brokers offer a wide range of professional trading tools. However, don’t let that lead you to believe the best stock trading platform is the one with the most tools. At least at the beginning, you’ll only need fairly basic charting functionality. If you do find you need more, there are plenty of free charting tools available on the web. You will also need to be able to view up to date profit and loss values for each position in your trading account. If you are on the go a lot, have a look at each broker’s mobile trading app. These trading apps do allow you to trade when you are away from your desktop. It’s also important that they allow you to view your portfolio and watchlists of live prices on your phone. That way you can keep track of the markets while you’re away.
The ability to easily add and remove stocks from a watchlist is a handy feature to have. Most professional traders follow quite a few shares, and it really helps to be able to add and delete stocks quickly. Being able to set trading alerts when stocks on your watchlist reach specific levels is another useful feature to look for. Ideally you will want the trading platform to send you an email or text message when a trading alert is triggered. Some brokers will let you trade through online stock trading software programs that can be plugged into the broker’s API. These systems can be very useful if you know what you are doing, but are best avoided until you learn the basics.
Trading fees and commissions
Once you’ve identified the features you would like to see in the best online brokerage for you, and identified some of the brokers that offer those features, you can start looking at trading costs. These days brokers can be roughly split into full service brokers and discount brokers. Full service brokers are similar to old fashioned brokers, and clients usually phone a dedicated broker for advice and to place orders. Discount brokers are far cheaper for online trading, because everything is automated. In most cases trading through a discount broker will cost 15-25 percent of the cost of trading via a full-service broker. These days there is little point using a full-service broker unless you have a really big account. The other thing that has changed is that in most cases commissions are charged as a flat fee, rather than as a percentage of the total trade value. However, fees have also fallen to the point that as long as the value of a trade is over $500 the fee will be quite low as a percentage of the whole.
Is a cheap online broker better?
The online broking industry is very competitive. The trading fees charged by most discount brokers now fall between $4 and $10 per trade. It’s a good idea to make a short list of brokers before you even look at the fees. Then choose the cheapest broker that can offer everything else you need. It’s certainly worth paying two or three dollars more if you are being offered features you really need. However, otherwise there is no reason to pay more. So, while you shouldn’t automatically choose the cheapest online broker, there is no reason to pay more without a good reason. Recently several stock trading apps that offer free trades have been launched. Before choosing one of these free brokerage accounts, ask yourself how they make their money. All brokers are in business to make profits, so if you are not paying a fee for online trading, they are making money in some other way. It’s not necessarily a bad thing. However, make sure you understand their business model and are happy with it before using one of these apps. For active trading clients, some brokers offer discounts if a certain number of trades are made each month. You should first work out how many trades you’ll do, before accepting such a deal. Don’t let a deal like this determine how many trades you will do. There are lots of online stock trading websites and resources that can give you access to the tools you need if your online broker doesn’t offer them. So, the best online trading platform for you, could well be the cheapest option, if you find the trading tools you need elsewhere.
Online broker regulation and security
When looking at an online broker comparison, the last thing to check is if the broker you are choosing is legitimate and properly regulated. Brokerage firms must be regulated by the primary regulator in the country in which they operate. While all proper brokers are regulated, some companies will masquerade as brokers when they are not. That means they will not be regulated and your stock brokerage account won’t be protected by the obligations of properly regulated brokers. Regulated brokers are not allowed to use client funds for their own purposes. In the case of a regulated broker becoming insolvent, client funds up to a certain amount will be protected by deposit protections funds. However, if you are trading with an unregulated company, this usually will not be the case.
A few other factors to consider when choosing a broker
Depending on your own specific needs there are some other factors to consider before opening an online trading account. By looking at verified online broker reviews you’ll be able to gauge the level of customer service you can expect to receive. This is of particular importance to active traders who will need to have any issues or problems addressed very quickly at any hour of the day. Something else to consider is whether you want to keep your investing and trading activities with the same firm that handles your retirement account or 401(k). While there is nothing to stop you opening another account with another broker, for the sake of simplicity you may want to keep everything with one broker.
Conclusion: How to choose an online broker
Online stock brokers offer a wide array of features and fee structures. It’s worth keeping things simple and choosing a broker with a good reputation, only the features you really need and a reasonable fee structure, rather than being drawn in by a platform with all the bells and whistles – especially when you are starting out. What are your thoughts on choosing an online brokerage firm? What’s your favorite online broker? Please let us know in the comments below.