Interactive Brokers vs. E*TRADE
Unless you're lucky enough to have direct access to an exchange, you'll need to open a brokerage account to start making investments. Online discount brokers can be a fine choice, as they're inexpensive, easy-to-use, and rapidly closing the gap with full-service brokerages. But shopping between brokerages can be a hassle. Below, we'll look at two popular brokerages, Interactive Brokers and E*TRADE , to see how they compare on the issues that matter the most to individual investors.
Trading costs and commissions
No matter where you ultimately decide to open an account, you'll find that most trades typically cost $10 or less, which is a fraction of what trades cost before discount brokers brought Wall Street to suburban living rooms. The table below shows how Interactive Brokers and E*TRADE compare on commission prices by the type of investment.
Stocks: $0.005 per share ($1.00 minimum)Options: $0.25 to $0.70 per options contract ($1.00 minimum)
$0.005 per share
$14.95 per purchase
$9.99 per trade + $0.75 per options contract
$9.99 per trade
$19.99 per purchase
Source: Company websites.
Admittedly, commission costs aren't always as straightforward as they may seem. Keep in mind that there are ways to pay less than the stated price. Interactive Brokers offers an alternative "tiered" commission schedule that promises even lower trading costs. E*TRADE offers commission discounts for its most-active traders.
Some trades are just simply free. Between these two brokers, you can invest in thousands of ETFs and mutual funds without paying a dime to the brokerage firm. In fact, some brokerages will even pay you to sign up. Frequently, special offers for opening an account include cash bonuses and free trades worth thousands of dollars. In other words, what you see is typically higher than what you pay on the average trade.
Commission-free ETFs and NTF Funds
Truly, depending on how you invest, you might be able to build a diversified portfolio without paying a penny in transaction fees. Interactive Brokers and E*TRADE offer long lists of commission-free ETFs and no-transaction-fee (NTF) mutual funds that make it easy and inexpensive to invest in funds.
NTF Mutual Funds
33 (Global X, Cambria, and O'Shares)
100+ (WisdomTree, Global X, and Deutsche Bank)
Source: Company websites.
Ultimately, each broker "wins" a column here for having more of one type of fund than the other. However, what's important is whether or not a broker's fee-free funds include those that you want to invest in, not how many funds it offers. It's not an exact science, though. Many funds have copycats or lookalikes that invest similarly and carry similar expense ratios, and can be used as substitutes to get fee-free trades.
Both E*TRADE and Interactive Brokers require a certain minimum balance to open an account. E*TRADE requires a minimum initial deposit of $500. Interactive Brokers requires a deposit of $10,000 for ordinary accounts, or $5,000 to open an IRA. It lowers its minimums to $3,000 for people who are 25 years old or younger.
Here at The Motley Fool, we prefer to invest with the long haul in mind, buying stocks that we want to hold for years, if not forever. For this reason, we don't trade much, and thus we don't have particularly strong views about which broker has the best trading platform because, well, we aren't exactly traders.
Realistically, Interactive Brokers and E*TRADE make it easy to place a trade with just a few clicks, which satisfies our simple needs. Active traders may demand more, however, and we'll simply defer to their personal preferences. We tend to think that personal opinion clouds any review of a trading platform, and there really isn't an objectively "best" or "worst" platform for every trading style. Put 20 traders in a room, and you'll get many different answers about which platform is the "best."
When you invest for the long term, the differences in trading platforms are more aesthetic than anything. Image source: Getty Images.
International stocks and ADRs
You don't have to study a foreign language to invest internationally. E*TRADE and Interactive Brokers allow their clients to invest in foreign companies, with just a few limitations. Here are the types of investments that are available to clients of either brokerage.
American Depositary Receipts (ADRs)
International stock markets
ETFs/mutual funds of foreign stocks
ETFs and mutual funds
ETFs and mutual funds
Source: Company websites.
Fund investors won't find any real limitations on their ability to invest internationally as a customer of either brokerage. Likewise, both brokers offer the ability to trade ADRs, which trade in the United States, but represent ownership of companies that are domiciled and listed elsewhere. Thus, you should be able to invest in many large foreign companies (think household names).
The biggest difference is in international market access. E*TRADE only processes domestic orders on domestic exchanges. Interactive Brokers allows for trading in more than 100 markets around the world. That means, if you get the urge to buy a stock listed on the London Stock Exchange in England or the Turquoise CH in Switzerland, for example, you can do it from the comfort of your own home through your online account.
Trading internationally typically results in higher commissions and fees that you may be able to avoid by trading domestically, where possible. Of the leading discount brokers, only a few currently offer international trading , and many charge commission prices that vary based on the exchange on which you transact.
Research quality and tools
We tend to believe that individual investors can benefit from access to a variety of research tools and support. Interactive Brokers offers analyst upgrades and downgrades, several daily investment briefs, a daily line-up of top headlines, and a wealth of screening tools, all just for having an account. E*TRADE provides research from S&P Capital IQ, Morningstar , Thomson Reuters, plus plenty of technical and fundamental stock and fund screeners.
Although discount brokers may be known for having fewer frills (particularly when it comes to research), you can find a wealth of free resources at most major discount brokers today (Interactive Brokers and E*TRADE included).
Mobile app reviews
Both brokers make it easy to place trades on the go through mobile trading applications. Here's how users and clients of each broker rated their iOS and Android apps (as of 1/04/2017).
Apple App Store
Source: Relevant app stores.
The better brokerage: Interactive Brokers or E*TRADE?
Depending on your needs, either could be a good fit. Interactive Brokers offers rock-bottom commission prices, but its per-share commission schedule may be less attractive for investors who trade in low-priced stocks. E*TRADE's lower minimum deposit requirement may be more attractive for new investors, while its flat-rate commission schedule favors higher-volume trades of low-priced stocks. That said, E*TRADE may prove restrictive for investors who want to place trades internationally.
Ultimately, there isn't just one brokerage that's a best fit for every type of investor. It's all about finding the best mix of features and functionality to fit your portfolio.
To be clear: The Motley Fool doesn't endorse any particular broker, but we can help you compare brokerages to find one that's right for you. Visit Fool.com's Broker Center for a comparison of features and special offers for traditional brokerage accounts. The Fool.com IRA Center is specifically designed with the retirement saver in mind, and provides a quick comparison of online broker ages by their retirement account features.
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