If you are new to investing or trading it's daunting trying to
find the right online broker for you. Emerging Money has a
There are so many online brokers out there today specializing in
different areas and markets. To get everyone on the same page we
need to start with a few assumptions.
1) We are all beginners or brand
new to stock trading.
2) We are looking to start out
by trading stocks and possibly options in the future.
3) We are not necessary full
time investors/traders, at least not yet.
4) The online broker we are
looking at is a member of FINRA/SIPC/NFA.
Every online broker provides the same bare minimum, allowing
clients to purchase stocks, but it really stops there. No matter
which online broker you choose, you are going to pay commissions
and exchange fees. The exchange fees are set by the exchanges so
they're set in stone.
However, commissions paid to an online broker differs from
broker to broker, and even differ on how you place an order. Some
online brokers will charge more in commission if you talk to a
live broker compared to placing the order online. They want to
encourage you to place orders online.
You'll need to shop around a little and look at websites for
commission rates. Beware, some brokers have tiered pricing
meaning the more you trade the lower the commission: look out for
the horrible phrase "from $$$ a trade" . And remember, the lowest
commission online broker is not necessarily the best. You can
find brokers out there offering $0.01 - $0.10 per share trades
but their platform, tools, and quotes are severely lacking.
Because we are beginners let's look at three key points that
have nothing to do with actually buying and selling directly.
1) Customer service -- since we
are new, having good customer support for the trading platform,
as well as support for questions on order entry and how to
interpret some of the data you will be working with is very
important. Look for an online broker whose support doesn't end at
4pm EDT when the market closes, but is available for you to ask
questions after you are done with your day job. Remember, a pure
online broker will not recommend stocks. A few have added
services for coaching, but separate agreements are in place for
those sorts of things.
2) Practice account -- Does the
online broker have what is commonly called a "paper account" for
you to practice on? A paper account looks and feels just like a
real account, it simply stops short of actually placing the trade
on the open market. It allows you to get used to the
actual use of the system and test strategies without putting your
capital at risk.
3) Online help -- Do they have
it? How thorough is it?
What features do their platforms offer? Not all charting is
created equal. Some online brokers' charting systems are so basic
that Yahoo and Google charts provide better information. Some
online brokers suggest purchasing or subscribing to a third party
vendor; not a good idea for a beginner, save your money.
You'll being adding monthly fees and exchange quote fees for
advanced software you are not prepared to use. Hint: there a
couple brokers out there with superior platforms at no additional
charge, however, they will not be rock bottom commission
The other two important things to look at are the quoting
system and order execution. What kind of quotes do they offer
clients? There is the basic quote feed you see when typing in a
symbol into Yahoo that provides the bid/ask, last price, volume,
etc. However, there is also something called 'level two'
Level two quotes provide more information, including the range
or cue on the bid/ask, how big the orders are, and on what
exchange the orders are on. Level 2 quotes may not seem
important, but they are, especially in emerging markets.
The final key feature I want to cover is order entry and order
execution. How easy is it to place an order, what order type can
be placed, and what route does the order take to be placed? Do
you have the ability to send orders directly through an exchange
of your choosing? Will they place partial orders?
In summary, the seven key elements to look for in an online
1) Customer Service
2) A practice account
3) Online Help
4) The platform
7) Order execution
Other nice things to have built into the platform are:
1) News feeds
2) Social feeds such
3) Watch list
4) Order execution from
The cheapest commission does not necessarily make the best
online broker. Compare and weigh the platform, the tools,
screeners, help, customer service, and the functionality of the
tools and charts. There are third party platforms out there that
connect to online brokers, but in some cases you will need to
manually place the order on your online broker platform, creating
additional fees added onto your commissions. I have personally
tested several of them when I was starting out and periodically
take a look at their offerings. I still find my online broker
provides similar or better functionality. Oh and on a personal
note, it's ok to have more than one broker -- I do.
If you are looking for a starting point, consider
. They have a few feature-rich platforms to choose from, and
also has a few options, including the ability to trade on several
foreign exchanges directly in that country's currency.
If you have questions feel free to email me or tweet me…