Want to buy shares of stocks like Apple (AAPL), Facebook (FB), Disney (DIS), or Uber (UBER)? If so, you will need an online broker account.
Choosing an online stock broker is one of the most important decisions you will make as an investor. This guide aims to introduce online trading and break down the best online brokers available today.
Here are the Overall rankings for the online stock brokers who participated in our 2021 Stock Broker Review, sorted by Overall ranking.
Each broker on our list is considered safe. You can be sure none of them is a scam. They are all regulated by at least one top-tier regulator.
However, brokerage companies can also go bust. Remember the collapse of Lehman Brothers? In such cases, it is important to know what happens with your securities and cash. Your funds are usually held in segregated accounts, so even if your broker goes bankrupt, your funds are safe.
If all goes wrong, and for example, the broker can’t pay your back your money, then you have a last resort, the compensation fund of the country where the broker is regulated.
A stock broker is an entity that facilitates the buying and selling of marketable securities like stocks and exchange-traded funds (ETFs). Through a stock broker, you can open a brokerage account, which is a specialized financial account that is designed to hold investments as well as cash.
When you want to buy stock in a company, you can’t simply call up the company and buy shares, nor can you just walk into your local bank and invest. You’ll need a specialized type of account, and that’s where the best online stock brokers come in handy.
There are two main types of stock brokers:
The costs and level of service you can expect from each type is very different, so if you’re looking for the best online stock brokers, it’s important to understand what they are.
A discount broker, also known as an online discount broker, is a company that allows investors to buy and sell investments online. While many discount brokers have valuable features, the actual process of buying and selling stocks is mainly user-generated, meaning that there’s not an actual broker who takes and fills clients’ orders.
Discount brokers are much cheaper than full-service brokers, and most actually offer zero-commission stock trading, as you’ll see in the discussion about costs below. For the vast majority of investors — especially beginning investors — a discount broker is the best choice. In fact, our list of the best online stock brokers for beginners is exclusively made up of discount brokers.
Think of a full-service broker as an “old-style” broker. This is a firm that operates out of a physical office where an actual person, or stock broker, takes and executes clients’ buy and sell orders. In addition, a full-service broker might provide personalized investment planning services, such as advice on what stocks to buy, tax guidance, and retirement planning help.
While costs have generally come down over the past few decades, full-service brokers are far more expensive than discount brokers. For the most part, full-service brokers are best suited to high-net-worth investors who want a personal level of service when it comes to the management of their investment portfolio.
The best type of broker depends on your personal situation, so no single type of broker will be right for everyone. However, for most beginners, the low-cost structure of a discount broker makes more sense. Plus, discount brokers are becoming more feature-rich over time, with educational resources, stock research, and other valuable features available at no additional cost.
There’s no perfect broker for everyone, but here are some of the important factors to keep in mind as you’re scrolling through our favorite online brokers:
There are a number of types of accounts available at brokerages:
While traditional discount and full-service brokers are where most investors go to buy stocks, they’re not the only option. Investors are now flush with options of where to buy stocks with mobile money-related apps now offering a suite of investment services in addition to budgeting and payments tools. Apps such as Acorns and Square’s Cash App are great options for buying stocks and managing an array of money needs.
Many brokers have also introduced Robo-advisor offerings. These are different than a traditional brokerage account in that investors mostly set their portfolio selection on cruise control and let automated algorithms do the stock buying for them, instead of individually picking stocks or working with a financial advisor. The result is a low-cost solution that’s a great fit for hands-off investors.
Trading commissions and account minimums are largely a thing of the past — especially when it comes to our best brokerage accounts for beginners. Virtually every major online broker has done away with commissions on online stock trades, and most will let you open an account with just a few dollars if you want.
However, some still have minimum balance requirements and others may require a minimum amount of money to utilize certain features, such as margin investing. And while most have no commissions for online stock trades, most brokers do have commissions for trading options and mutual funds, among other things. That means it’s worth taking a look at a particular broker’s fee schedule before deciding whether to open an account.
Here’s why trading commissions are so important: Let’s say that your broker charges a $6.99 commission for online stock trades and you have $1,000 to invest. You want to spread your money across a portfolio of five stocks. So, to make your initial investments, you’ll pay nearly $35 in trading commissions. This means that you’re effectively starting out with a 3.5% loss in your portfolio. Plus, you’ll pay another $6.99 every time you add to each one of your stock positions. If you’re planning to build up your portfolio over time, it’s not hard to see how this can rob you of thousands of dollars over the years.
As you can see from the table below, all of our best brokerage firms for beginners offer commission-free stock trading. However, the commissions and fees for other types of trades and services can vary dramatically, so it’s still important to look at the entire fee schedule before deciding on a broker.
|BROKER||ONLINE STOCK COMMISSION|
|SoFi Active Investing||$0|
Most major online brokers, including all of the brokers listed on this page, have no account minimum whatsoever. This historically hasn’t been the case, and when I opened my first brokerage account nearly 20 years ago (with one of the companies on this page), I needed $2,000 just to get started.
A low minimum deposit requirement is especially important for beginners or younger investors who may not have a ton of capital available immediately but want to gradually build their first investment portfolio.
As mentioned, all of our favorite online brokers for beginners have no minimum balance requirements to open or maintain a brokerage account, but this isn’t necessarily true for all online brokers. So, if you’re considering one that isn’t on our list, this is an important piece of information to find.
The process for opening a brokerage account is similar to the process for opening a checking or savings account. If you’re using an online broker, it should take you about 15 minutes and should involve filling out a few simple forms.
To help expedite the process, make sure you have these available:
Withdrawing your money from a brokerage is relatively straightforward. When you have money in a brokerage it is generally invested into certain assets. Sometimes there is cash left on the side that is in the account but not invested. This excess cash can always be withdrawn at any time similar to a bank account withdrawal. The other money that is invested can only be withdrawn by liquidating the positions held. This means selling the assets that you purchased like stocks, ETFs, and mutual funds. Once sold, you can withdraw that cash.
So now that we went through the fundamentals and got to know the brokers and the basics a bit better, how do we start?
There are many ways to benefit from a rising stock market. No matter if you want to invest in household names like Microsoft, speculate in rising stars like Tesla, or invest in gold.
This 5-step guide will help you get on the right track:
After this short introduction let’s look at each of these steps in more detail.
The first step before you make stock investments should be making a plan, which involves several basic questions you should think about.
The three main factors you need to consider before investing in stocks are:
Knowing the answers to these questions will put you on the right path to invest in stocks. It will help define which kinds of products and stocks are the best fit for you based on your investment goals, time commitment, and risk profile, or whether stocks are for you at all.
Last, let’s look at whether stocks are the right investment for you, or if you should focus on other types of products.
Regarding risk, a good rule of thumb to follow is this: If your stocks are down 20% in a week, how badly would that affect you? If that is too much and you don’t think you would be able to handle it, then stay away from stocks and invest instead in some less risky assets, such as short-term U.S. government bonds, for example. If, however, you would be OK with this kind of short-term loss in the hope of long-term gains, then go ahead, stocks might be right for you.
Alternatively, you can also invest in ETFs or mutual funds, which are a natural, simple form of diversification. Read more about ETFs here.
Another popular method to decrease risk in your portfolio is to invest in gold along with regular stocks. Read more about how to invest in gold or buy stocks of gold mining companies here.
If you’ve decided on what type of product you want to buy to invest in stocks, you need to open an account at a stock brokerage firm. But which one? Today there is a wide array of choices available for all kinds of brokers, be they traditional brick-and-mortar companies with offices, or online broker firms. Each brokerage has its own strengths and weaknesses, different fee structures, product offering, trading platform, research and learning tools, and so on, so the choice can be a difficult one.
Once you’ve selected the right stock broker for you, you need to open an account. This account will handle all your money, as well as all of your investments, such as stocks, funds, bonds, etc. The account opening can usually be done online and may take anywhere from a day to several days. You will also need to fill out various identification forms, so have your documents ready.
After opening your account, in order to start investing in stocks, you will need to deposit money to the account, which is also referred to as funding your account. Depending on the broker, this can be done via bank transfer, credit card, or even electronic wallets like Paypal or Apple Pay. Some brokers also set a minimum amount that you have to deposit to start trading, so keep this in mind when making the transfer.
Tip: Open a demo investment account
Many online brokers offer demo accounts, where you can try out how buying and selling stocks works, without risking any of your actual money. These accounts and trading platforms look the same as the live ones, but no actual transactions are carried out on the open market – the deals are only virtual. It’s a useful tool for getting to learn the details of stock trading in demonstration mode, before jumping into the market with your hard-earned savings.
With your investment strategy ready, and your account opened and funded, all you need to do now is buy the stock that you have selected. Trading platforms usually have a search function to help you with this process. Taking into account how much money you have and the price of the product, enter how many shares you want to purchase and press ‘Buy.’ Congratulations! You have now made your first investment and are the proud owner of the stock.
When placing an order, you can choose from different order types. A market order buys immediately at the current market price, while a limit order allows you to specify the exact price at which you want to buy the shares.
Risk: when buying individual stocks, there is always a risk of selecting the wrong ones. This could mean anything from a company that inflates its potential, actually defaults, or just buying overpriced stock.
After the initial purchase is done, you can start building or changing your portfolio by buying new products or selling them in order to reap the profits (or cut losses). This is called portfolio management and is usually a necessary part of investing. Although it is possible to buy just once, lie back, and hope that you made the right choice and you will be a millionaire years later when you retire, it is not the general experience.
For short-term buyers, position management could mean setting up the stop-loss price of where to cut losses and the target price of where you want to sell the shares with a profit.
A good investor keeps an eye on market movements, how economies are doing, which sectors are booming and which are struggling, and adjusts his or her strategy, and makes investment decisions accordingly.
Even if you are a long-term investor, you should review your assets a couple of times a year at least. If you are satisfied, then you can leave things as they are, but if you want to make changes you should. If you are unsure, don’t be afraid to ask for advice, either from an advisor at your online broker, or by doing some research yourself, watching online videos, or educating yourself via investment courses.
Anyone who would like to get involved in the stock market should know some basic terminology: