Selecting one of the best online brokers is a crucial first step in your investing journey, even before deciding on what stocks, ETFs, or funds to purchase. To aid your decision, we’ve narrowed down the list to five of the top online brokers serving US investors.
With over 3,300 brokerage firms registered with FINRA in 2022, the choice can be overwhelming. However, focusing on a fairly small number of online discount brokers makes this task more manageable.
Not every broker is best for everyone. Your choice will depend on your investment goals, risk appetite, and market experience.
Comparison of Online Brokers
|Broker||Commission||Premium Account Charges||Fractional Shares||Paper Trading||Robo-Advisor||International Markets|
|Fidelity||$0||Fidelity Go: $3/month||✔️||❌||✔️||25 markets|
|Charles Schwab||$0||Schwab Intelligent Portfolios Premium: $30/month||✔️||❌||✔️||12 markets|
|Robinhood||$0||Robinhood Gold: $5/month||✔️||❌||❌||❌|
|E*TRADE||$0||Core Portfolios: 0.3%/month (for accounts with market value over $500)||❌||✔️||✔️||❌|
|Interactive Brokers||$0||IBKR PRO: Tiered Pricing||✔️||✔️||✔️||150 markets|
1. Fidelity – Best For Novice Investors
With over 40 million individual investor accounts and more than $11 trillion in assets under administration, Fidelity Investments is the largest brokerage firm in the U.S. It is one of the most popular discount stock brokers as well, with zero commission fees and low administrative costs.
Fidelity does not charge any commission on equity and ETF trades. It permits investments in U.S. treasuries, corporate bonds, and other popular debt instruments, making it ideal for risk-averse investors.
The platform is renowned for its extensive research and assistance features. It features several best-in-class portfolio analysis tools and stock and asset screeners. All customers with Fidelity accounts have free access to the platform’s highly regarded research articles and partner content from more than 25 industry-leading websites.
Through a Fidelity account, you can invest in international markets across 25 countries in 16 different currencies.
However, Fidelity Investments doesn’t permit futures, options on futures, commodities, or crypto trading. This is not likely to be an issue for novice investors or buy-and-hold investors, but it might hinder the investment goals of active traders and expert investors.
Only U.S. residents can open and maintain accounts with Fidelity, so it’s not an option for non-U.S. citizens.
2. Charles Schwab – Best for Intermediate Investors
Founded in 1971, Charles Schwab is one of the largest brokerage firms in the U.S., with more than $6.6 trillion in client assets. The platform charges $0 in commissions for equities and ETF investments, while options trades bear a $0.65/contract commission charge. Schwab facilitates cryptocurrency trades as well.
Charles Schwab announced its plans to acquire popular brokerage firm TD Ameritrade Holding Corporation for approximately $26 billion in 2019. Thanks to its growing popularity among the masses, Schwab added $115 billion in core net new assets in the third quarter of 2022, reflecting a 7% annualized growth year-over-year.
After receiving the green flag from the Antitrust Division of the Department of Justice in 2020, the platforms are currently in the process of merging their operations. Charles Schwab estimates the merger to conclude by 2024. Through this acquisition, Schwab aims to become “the most trusted leader in investment services”.
Besides its discounted brokerage services, Charles Schwab provides automated advisory and other premium services. Its Intelligent Portfolios platform comprises Robo-advisory services, including automated portfolio creation, monitoring, and rebalancing. Investors can avail of the benefits from Schwab’s Robo-advisor with a minimum investment of $5,000.
Schwab employs certified financial planners to provide unlimited investment guidance to investors using its Premium service.
Charles Schwab’s customizable option screeners allow investors to pinpoint the best options contracts to invest in depending on their preferences. With a competitive $0.65/contract commission, it is one of the best brokers for derivatives traders.
3. Robinhood – Best for Commission-Free Equity and Crypto Investing
Robinhood shot to fame during the pandemic’s early days thanks to the increased interest in stock market investing. Its commission-free trading model has disrupted the U.S. brokerage industry.
The platform aims to “democratize finance for all” by making it accessible to users all over the country. Founded in 2014, the start-up charted a steep growth over eight years, thanks to its no-fee model and minimal trading restrictions. It also facilitates fractional share and cryptocurrency trading.
As of August 31, 2022, Robinhood had 13.3 million monthly active users and $71 billion in total assets under custody. Further, the platform’s net cumulative funded accounts, which reflect user growth, increased 2% year-over-year as of August.
The trading platform’s parent company Robinhood Financial LLC also supports cash management services, which allows investors to earn interest on uninvested funds held with the Robinhood app.
The platform offers a 1.25% annual percentage yield (APY) variable interest on funds, at par with several popular online savings accounts. With no monthly service fees and FIDC insurance of up to $1.25 million, Robinhood’s cash management services set it apart from many other online trading and investing platforms in the U.S.
The Robinhood platform remains popular among retail investors, despite the GameStop controversy in early 2021. The discount broker restricted trading of GME and other popular meme stocks when prices were skyrocketing, citing market volatility as the primary reason. This resulted in a barrage of negative publicity. It also came into the crosshairs of the SEC and was subsequently required to pay a $70 million fine.
Robinhood is one of the earliest adopters of the latest market trends, given its younger tech-savvy and prone to risk-taking clientele. It is currently in the process of rolling out a decentralized finance (Defi) wallet for storing a multitude of digital assets, including cryptocurrencies and NFTs.
4. E*TRADE – Best for Derivatives Trading
E*TRADE is a subsidiary of Morgan Stanley, one of the largest investment banks in the U.S. The platform, established in 1982, is one of the pioneers of online brokerages.
It also has significant exposure to high-volume derivatives trading, thanks to its acquisition of OptionsHouse’s parent company Aperture New Holdings, Inc., in 2016. It charges no commission on equities and ETF trades.
On the other hand, options trading bears a fee ranging from $0.50 to $0.65 depending on the contract volume and monthly trading history. Foreign stock trades, over-the-counter (OTC) trades and large-block transactions will incur charges.
E*TRADE also operates as a full-service broker, providing Robo-advisor and professional planning and consulting services. Account holders with an initial investment as low as $500 can avail of E*TRADE’s Robo-advisory services, which include automated account services, portfolio construction, and cash management. Its expansive educational content and research material make it a top choice for novice investors and experts.
However, the platform does not permit trading on international exchanges or crypto investing. Investors looking to branch out from domestic equities into foreign markets and alternate asset classes might benefit from other comprehensive online brokerage firms.
5. Interactive Brokers – Best for Experienced Traders and Foreign Markets
Interactive Brokers facilitates trading and investing across asset classes in over 150 international markets. As of September 30, 2022, the platform has approximately 2.01 million customer accounts and client equity worth $287.10 billion. The platform features individual investment and professional accounts for businesses and institutional investors.
While Interactive Brokers is smaller than some industry leaders, including Charles Schwab and Fidelity Investments, its top-notch features and services make it one of the best options for a seasoned investor.
The platform’s portfolio management system, PortfolioAnalyst, is not limited to investments. It also tracks all financial accounts, including checking, savings, and debt. It features 49 predetermined screeners for major asset classes and different risk tolerances. Interactive Brokers also has a Tax Optimizer tool, allowing investors to plan their investments for maximum tax savings.
Its extensive research tools include Traders Academy, which covers rigorous finance topics for investors wanting to expand their knowledge base. Interactive Brokers also have tied up with top financial news outlets and real-time data platforms to ensure clients have access to updated market data at their fingertips.
Interactive Brokers provides clients free access to technical, macro, and quantitative data from Reuters Stockreports+, Edison Investment Research, and MorningStar Equity Ownership, to name a few.
The platform allows trading on a uniquely wide range of international stock exchanges, as well as fractional share investing. You can also set up a direct dividend reinvestment plan, ensuring immediate reinvestment of dividends earned without requiring constant monitoring of accounts.
Interactive Brokers is one of the most sophisticated online brokers in the U.S. However, the platform’s interface and technical features might be daunting for an unseasoned investor.
What Should You Look For in an Online Broker?
Technology has revolutionized investing, with online brokerages gaining traction across the U.S. and worldwide. Besides significantly lower transaction fees and annual maintenance charges, online brokers facilitate instantaneous transaction processing, allowing traders to leverage sudden intraday price spikes and stock dips.
Let’s look at some of the key criteria that will drive your decision.
The Cheapest Isn’t Always the Best
Most investors opt for the broker with the lowest brokerage fee. In many cases, that fee is now zero: commission-free trading is now the norm. That’s helpful, but don’t overlook other vital characteristics, including broker assistance, access to information on various investments, and investment restrictions pertaining to location, citizenship, etc.
It’s also important to remember that zero-commission brokers still have to make money. They often do that through “payment for order flow”, which routes trades to the market maker that pays the most to the broker, not to the one that offers you the best price.
If you’re a frequent trader it’s important to have zero-commission trades if possible, but that shouldn’t be your only consideration, especially if you’re a buy-and-hold investor.
Watch Out for Excessive Gamification
Several online brokers often “gamify” their platforms to lure novice investors and promote frequent trading. While gamification features might seem appealing, it often drives less experienced investors to be swayed by the herd mentality in herd mentality, leading to significant losses when the hype dies down.
The European Securities and Markets Authority explains, “Gamification techniques in trading apps and personal recommendations on social media may cause retail investors to engage in trading behavior without understanding the risks involved.”
The U.S. stock market watchdog Securities and Exchange Commission (SEC), is currently scrutinizing the latest gamification trends.
Look For Platform Restrictions
Online brokers often provide add-on services, such as investment in international markets, paper trading tools, and curated research newsletters. Depending on your investing style, you should look into the additional benefits offered to reap maximum benefits from your broker.
If you want to invest in stock markets outside the US, look for a broker that provides international market investment options at attractive brokerage fees.
Also, check whether they provide fractional share investing. Fractional shares can open up access to shares you couldn’t otherwise afford.
For example, investing in Warren Buffet’s Berkshire Hathaway stock might be unfeasible, as the stock is currently trading above $420,000. However, investing in $1,000 worth of Berkshire stock can still allow you to get a piece of the action.
Furthermore, beginners should opt for online brokers that provide effective, user-friendly analysis and research tools to help them make informed investments.
Know Your Needs
Many of the best online brokers offer enormous ranges of investing tools and capabilities. That doesn’t mean you should be swayed by those offerings. The best broker for you is the one that meets your individual needs. Very complicated or comprehensive systems can even be an obstacle to investors, especially those embracing a basic buy-and-hold investment strategy. Not everyone is an active trader and not everyone should be!
Which Brokerage is Best For You?
While the brokerages mentioned above are some of the best for all classes of investors, your choice will be based on your level of investing expertise, your short and long-term investment goals, your risk appetite, and other personal factors.
There is no absolute “right choice” for a broker. Assessing your needs accurately is just as important as reviewing what different brokers have to offer, and it can be more difficult: many investors overrate their own expertise and their own needs.
Defining your needs accurately is the first step, and reviewing brokers is the second. The list above should give you a place to start!