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Are you a trader who wants to cut down on costs?
Welcome to the club – now here is the good news:
Thanks to a few first movers offering low-to-no fee commission trades, many brokers recently slashed their prices, making it extremely affordable to make trades. By doing so, brokerage firms now appeal to many people who thought investing in the stock market was too expensive or risky.
These “discount brokers” got their name because of their thrifty price cuts on commissions and fees. While you may not get as many full-service options – even with the best discount brokers – you’ll everything you need to successfully buy, sell, and invest in stocks online.
Today, most traders look for brokers who have low to no trading fees because they want to actively buy and sell without losing any profits. However, discount brokers are mostly suited to intermediate and advanced traders unless you plan to use educational tools to learn how to make the right trades.
Before I get into the reviews, it’s important to understand that the best discount broker is the one who helps you make the most money overall. That doesn’t necessarily mean the lowest fees (although it could).
Affordably-priced brokerages offer much more than cost savings: reliable, secure trading platforms, educational knowledge bases, and helpful customer support are among the many features offered by some of the brokers who made my “best” list here.
Benjamin Franklin said it best, “An investment in knowledge pays the best interest.”
In other words, it’s not all about the Benjamins… baby. With that said, let’s dive into my top picks for the best discount brokers.
Top Discount Brokers
The following list displays the best brokers for low-cost trading:
You may wonder why IB was chosen for low costs if it still shares $0.005 per share. This is because the amount of profits that traders earn on this platform is unbelievable. The order routing system is by far the best for active traders, and you’ll see price improvements in almost any market using this platform.
Traders can use a variety of tools to find appropriate trades, and you can test your strategies using their backtesting and simulation tools. With IBKR Lite, there are $0 fees, but it’s completely stripped down and made for seasoned traders. However, using their education tools and videos, most beginners could become active traders on IBKR lite.
You must be a US-based trader to take advantage of $0 commission fees, and you also have to only use the web-based or mobile app to make trades. Also, you can find further info on the IB platform’s features, in our in-depth review.
Charles Schwab offers a ton of convenience for beginner investors, passive investors, and some active traders. With its newly eliminated commission policy, many investors are getting into investing through Charles Schwab because they have incredible marketing. However, the discount broker stands up to its quality thanks to StreetSmart Edge.
You can download StreetSmart Edge or run it from the browser. It’s an advanced platform that streams real-time data and trending news in a dashboard, and you can also customize charting toolkit. Charles Schwab also has other tools like TradeSource, which is more simple than Edge but doesn’t offer as many tools.
While some traders complain about Charles Schwab’s trading technology, the accuracy is pretty high for a discount broker, and they have excellent reviews for their customer support. In addition, their portfolio analysis and in-depth reports can help you make smarter decisions and diversify your investments even more.
However, you don’t need to fall for their full-service plans and pricing unless you are trading in very high volumes and taking on a lot of risk.
While it used to be the most costly to trade with TD Ameritrade, the company led the way in ending commissions in October 2019. Now most brokers don’t charge commission fees on stocks, ETFs, and per-leg options.
No commissions on stocks, ETFs, and per-leg options trading for US clients
In-depth research tools and tons of streaming news feeds to keep you in the know on your favorite markets and stocks
Variety of education tools and testing simulators
Accessible on web, desktop, and mobile
Additional customer support available through Facebook Messenger, Twitter, and WeChat
Traders may have to switch between platforms to access certain analysis tools
It’s difficult to find some educational content as the knowledgebase is disorganized
If you want a variety of tools, access to years of historical data, and a simple-to-use platform, TD Ameritrade offers one of the best discount broker platforms. It’s also one of the oldest and largest online brokers. Since the company eliminated commissions on stocks, ETFs, equities, and per-leg options, they have brought on more investors as a whole.
With a variety of tools and research capabilities, you can learn a lot about investing before you even make a deposit. You can use the paper money app to simulate and test strategies without using any real money. When you’re ready, the thinkorswim platform offers a number of streamlined tools for buying and selling on all kinds of markets.
TD Ameritrade works for all beginner and advanced traders, but it’s not the greatest for margin trading due to high-interest rates.
Robinhood takes a no-frills approach to investing. While you won’t pay commissions on any stocks, ETFs, options, or cryptocurrencies, you don’t have as many tools or portfolio analysis options. In addition, traders can’t invest in mutual funds and bonds with this broker.
Investor Warning: Carefully consider the investment objectives, risks, charges and expenses of any investment company before investing. All securities trading, whether in stocks, exchange-traded funds (“ETFs”), options, or other investment vehicles, is speculative in nature and involves substantial risk of loss. Robinhood Financial encourages its customers to invest carefully and to use the information available at the websites of the SEC at http://www.sec.gov and FINRA at http://FINRA.org.
Robinhood is designed to be a very simple, introductory mobile app to investing. It’s the best discount broker for those who want to trade stocks, options, ETFs, and digital currencies without ever paying a fee or commission. In exchange, you don’t have access to many research tools, and customer support is pretty limited.
For those who frequently trade stocks – and love to use their mobile phones – Robinhood offers a user-friendly mobile app. There are various account levels as well, and while the base account requires $0 balance, you may need $2,000 for a Gold margin account.
As a highly rated broker, Fidelity is likely the best when it comes to no commissions and trade order execution. In addition, you also get access to robo-advisors, research tools, and portfolio analysis reports.
Fidelity has made some improvements to its platform in the past two years. Now it’s easier for investors to place an order online or on their mobile phone via the app. In addition, the company added a quantity calculator to order tickets so customers would not exceed their buying power.
With high-quality trade executions, Fidelity prioritizes your order so you get it at the best price. Their price improvement has a very high rating, which makes most of its customers happy. You can also use their real-time data streams on Active Trader Pro to get up-to-the-minute quotes.
What to Look for in a Discount Broker
Most brokers are doing anything right now to get more investors and keep their current clients, which meant slashing commission fees completely in October 2019.
As more mobile apps get into “easy investing” for those who don’t know how to invest, many of the larger brokers had to reduce their fees as well. TD Ameritrade was the first to do so, and that chain reaction led to many other brokers either lowering or completely removing commissions.
In addition to lower costs, there are a few other things to consider when choosing a discount broker.
Why Do People Choose Discount Brokers
Lower costs overall
Low to no commission fees
Online, browser-based or mobile app tools
Access to educational resources
No account minimums
Better for active traders rather than passive investors
If you want more advice, guidance, and hands-on customer service, then full-service brokerage firms offer more services. However, these typically require you to keep a significant account balance of $10,000 or more.
If you’re still stuck trying to choose a broker, we recommend reading this guide that will walk you through the process.
How do I Choose a Discount Broker?
First and foremost, establish how much you’re willing and able to invest each month, as well as the size of your initial investment.
Make sure that your broker of choice offers a range of investment offerings that suits your needs, and take a close look at the broker’s commissions and fee structure. Another thing that should factor into your decision is whether or not the broker in question offers tax-advantaged retirement accounts. You should also consider the research tools and educational materials that a broker provides.
In this digital day and age, technology matters – check if your broker of choice complies with the best available security standards, and make sure to read the user reviews for a broker’s mobile app as well as their online and desktop platforms, if available. Make sure that your broker is registered with regulatory bodies, such as the SEC and FINRA.
How Much Do Discount Brokers Charge?
Trading fees or commissions are no longer charged by most discount brokers. While there may be some online brokers that still charge a small fee, they should make up for it in some way with a smart tool or lower margin rates.
Discount Broker Fee Structure
So, if discount brokers attract clients with free trades and low or non-existent fees, how do they make money?
Discount brokers lend out idle cash on a short-term basis and keep the interest that is generated as profit. Some discount brokers do the same with securities – lending them out to short-sellers.
Discount brokers also earn money through margin rates, and many brokers offer premium memberships which operate on a subscription-based model. When discount brokers branch out into other areas of financial services (and most of them eventually do) such as robo-advisors, those services provide another source of revenue. And last but not least, discount brokers often receive payments from market makers in return for directing order flow.
Once all of that is said and done, we’re still left with the ever-unpleasant topic of hidden fees. Fee schedules are complex – fees for inactivity, account transfers, closing accounts, ACH and wire transfers can all come into play depending on a specific broker’s fee schedule.
What is a Good Brokerage Fee?
In the case of discount brokerages, the closer to $0 and 0%, the better.
However, that’s quite unrealistic for full-service brokers. If you end up choosing a full-service brokerage, try to find one that charges between 1% and 1.5% of your total assets in the form of an annual fee.
Discount brokers make up for their lack of fees by not offering financial advice or greater tools for their lower-level accounts. You may have to pay more or keep a certain account minimum to get access to better charting tools and more intelligence software.
Are Discount Brokers Good for Long-Term Investing?
Stocks offer the most advantages with an IRA or Roth IRA. You can set up these long-term savings accounts and play the stock market to grow your money. Most of the time, these accounts allow you to select what you invest in, and financial advisors typically go with mutual funds.
Most discount brokers have retirement planning options, but they may not be as robust as TD Ameritrade or other historic brokers.
Are Discount Brokers Safe?
The brokers that we’ve covered in this article are. But are discount brokers, in general, safe?
We would veer towards “yes” as an answer, but when it comes to financial stability and your investments, you shouldn’t approach anything in general terms. If you’re interested in a discount broker (particularly if we haven’t already reviewed it), then due diligence pays off.
You should always check if the broker in question is registered with the SEC and FINRA, if it has suffered any significant security or data breaches, and if it carries FDIC and/or SIPC insurance.
Researching a broker, reading reviews, and paying attention to the experiences of its current clients can go a long way in establishing if a particular broker is safe or not. Brokers that are publicly traded and registered as fiduciaries tend to be the most stable and trustworthy – but everything should be approached on a case-by-case basis.
Which is the safest and most reliable discount broker?
Data breaches and hacks are extremely rare occurrences, even with discount brokers. Reputable discount brokers tend to follow industry standards when it comes to security. All of the brokers in this review use government-grade encryption. Some companies, however, like M1 Finance use even more secure military-grade 1056-bit encryption.
When it comes to the brokers that we’ve covered in this list, only TD Ameritrade has suffered a significant data breach – and that was way back in 2007. Aside from that, Robinhood has run into issues with reliability more than once – with the platform shutting down for a few days in 2016, and then again in 2020. This platform failure cost its users a few very valuable trading days.
As far as which broker on our list is the safest and most reliable – all of them have pretty much spotless track records. Interactive Brokers comes in at first place, however, due to their decades-long presence in the industry and their use of the latest encryption and cybersecurity technology.
What is a Full Service Broker?
Full-service brokers are licensed broker-dealer companies that provide a much wider array of financial services than discount brokers do.
The exact services provided will vary from broker to broker. Full-service brokers generally offer powerful research tools, access to initial public offerings, financial advice, portfolio analysis, tax advice, retirement planning, market analysis, dividend reinvestment programs, estate planning, as well as access to foreign markets and a wider range of investment offerings to their clients.
What do Full Service Brokers Charge?
This will depend in large part on the specific broker in question. A large number of full-service brokers will charge clients an annual fee totaling 1% to 2% of the assets under management.
Other than that, here are some of the most common fees that you’ll likely run into with a full-service broker.
Many full-service brokers charge annual fees, which typically range from $50 to a couple hundred dollars annually. Fees for trading platforms are also quite common.
Fees usually range from $50 to $200 per month, but some brokers will reduce that amount by the amount that is paid in commissions. Although research and data subscription fees are rare, some brokers still charge them. They usually fall into the $1 to $30 per month price range.
Some brokers charge inactivity fees if the volume of trading does not meet the broker’s minimum requirements. These fees range typically don’t amount to more than $200 on an annual basis, and the assessments that determine if a client will have to pay such a fee can be conducted on a monthly, quarterly, or annual basis.
Luckily, inactivity fees are much less common nowadays when compared to a couple of years ago. With some luck, in another couple of years, we won’t have to worry about them at all.
Are Full Service Brokers Worth It?
If you can afford the minimum investment requirement and fees associated with using a full-service broker without it putting your financial stability at risk, then full-service brokers are most definitely worth it.
The wide range of investment opportunities, as well as the personal approach toward your investments that full-service brokers offer can net you fantastic returns, all the while saving you plenty of time and energy, and sparing you from many a nerve-wracking moment of doubt.
Full-service brokers also offer a variety of services – from wealth management, private banking, and retirement planning to budgeting advice, tax-friendly distribution plans, and one-on-one financial advice from professionals.
Most full-service brokers offer increasingly lower commissions as the total worth of your investments rises. If you have money to spare and would prefer a hands-off approach bolstered by professional advice, you should consider opening an account with a full-service broker.
What is a Disadvantage of Using a Full Service Broker?
The costs that are associated with using a full-service broker. Full-service brokers generally charge higher fees, and the cost of utilizing the wider array of services that they offer can quickly add up to quite a large sum.
Along with that, many full-service brokers have quite steep minimum deposit requirements. Although industry trends seem to suggest that minimum deposits will eventually go the way of the dinosaurs, this hasn’t happened yet.
Beginners, who would benefit the most from the services of such brokers might be unable to open accounts. Therefore, a potential issue of accessibility should also be noted.
Full-Service Brokers vs. Discount Brokers
For those investors who are just starting out, you may want more attention, advice, and tools that you pay for. If you want these things, then a full-service broker is your best choice. Charles Schwab is both a discount broker and a full-service broker. They offer complete account management or allow you to manage it yourself. See more full service brokers.
Discount brokers are better for traders who have some knowledge of the market and want to place trades themselves. You have to have more confidence in your trades if you are placing bids manually, but some discount brokers have robo-advisors and other tools to help you decide on the best trades.
Which is Better: Discount Broker or Full Service Broker?
There is no one-size-fits-all answer to this question.
Full-service brokers are a better choice for investors who can afford the higher fees and account minimums, and those who are looking for a wider range of financial services. If you prefer a hands-off approach, a good full-service broker will guide you in the right direction.
If you’re a beginner who doesn’t have a particularly large nest egg or an intermediate investor that prefers to make their own decisions, the easily-accessible, affordable, and user-friendly nature of discount brokers will appeal to your needs. Discount brokers give you quite a lot of room to grow. They often provide an abundance of educational material, as well as more powerful premium research and charting tools down the line – albeit usually at additional cost.
Can You Trade Online Without a Broker?
Some employers and companies offer a direct investment plan. In this way, you don’t have to use a broker at all. However, it’s not easy to trade on your own, and only a few publicly traded companies allow you to buy stock directly.
What is the Cheapest Way to Buy a Stock?
The cheapest way to buy a stock is through a company’s direct stock purchase plan (DSPP). DSPPs allow you to purchase stock directly from a company, or through their transfer agent, and the prices are usually the cheapest ones available – and discounts abound. But are DSPPs the way to go?
DSPPs aren’t for everyone – in fact, they have a rather long list of disadvantages. Enrolling in a DSPP requires a minimum investment, which usually ranges from $100 to $500, and quite a few DSPPs require you to sign on for a period of time, during which a certain sum will automatically be deducted from your bank account each month. This means that you’re unable to utilize dollar-cost averaging.
On top of that, DSPPs are the exception, not the rule – most companies do not have such plans in place. Enrolling in a DSPP requires opening an account – and if you want to invest in multiple stocks, you’re going to need multiple accounts. The process is simply far too time-consuming if you want to achieve even a semi-decent level of diversification.
In practice, the answer to this question is unsurprising. Your best bet is to purchase stocks from a trusted, reliable discount broker that offers commission-free trading and low fees.
Can You Trade Stocks for Free?
There are plenty of brokers that no longer charge any commissions on stock trades. These include Charles Schwab, TD Ameritrade, Fidelity, and Robinhood. Read our guide to free brokers for more.
Wrapping Up: What Discount Broker Should You Pick?
Most traders have specific investment personalities. For those who are looking to passively invest and earn a nest egg, you may want to go with a larger broker such as TD Ameritrade. For active traders who want to save the most money, Interactive Brokers makes the most sense because of its benefits for high trade volumes.
In addition, traders need to look at overall services and fee structures before setting up any brokerage account. Some of the best discount brokers give you access to exclusive tools like the thinkorswim platform on TD Ameritrade.
All reviews, research, news and assessments of any kind on The Tokenist are compiled using a strict editorial review process by our editorial team. Neither our writers nor our editors receive direct compensation of any kind to publish information on tokenist.com. Our company, Tokenist Media LLC, is community supported and may receive a small commission when you purchase products or services through links on our website. Click here for a full list of our partners and an in-depth explanation on how we get paid.
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firms specializing in sensing, protection and control solutions.
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