Discount Brokers

Best low-cost online brokers

Investors who choose a broker based primarily on cost don't have to sacrifice amenities like customer service and high-quality trading tools. Discount broker TradeKing, for example, earns high marks in other areas, notably customer service. SmartMoney magazine rates it number one for customer service in their 2010 review, and ranks it fifth of 17 online brokers overall. One reviewer notes that this broker also "has excellent educational resources." However, TradeKing's signature feature is its online community; it was the first online broker to incorporate social networking. Last year, Barron's noted that TradeKing's online trader community "is well-integrated into the trading platform, so customers can get ideas from one another, as well as from the research offered on the site." This year's Barron's review notes that the firm "is still the king in integrated community resources." Stockbrokers.com also rates TradeKing as having the best online community, and ranks it fourth overall out of 23 brokers covered in its 2011 review.

TradeKing charges a flat fee of $4.95 per trade for trades of any type and 65 cents per option contract. There are no hidden fees, and there is no minimum to open an account, which makes this online broker ideal for those who are just starting to build a portfolio. TradeKing operates online only and offers no banking services.

Scottrade gets mixed reviews from experts but generally high marks from individual investors. In the 2008 J.D. Power and Associates investor satisfaction survey, Scottrade ranked first overall for the eighth time in nine years; in the 2009 and 2010 surveys it is in third place, with an overall rating of 4 out of 5, or "better than most." The firm also ranks fifth of 17 brokers in a May 2009 customer satisfaction survey by ConsumerReports.org. SmartMoney magazine's 2010 review ranks Scottrade sixth of 17 brokers, noting that the firm has almost 500 branch offices in the United States and that "placing online trades is quick and easy." Barron's doesn't give it a high ranking overall in their 2010 review, but points out that Scottrade has increased its educational resources over the past year, and now offers some international trading. Scottrade offers $7 online stock trades, and there are no account maintenance or inactivity fees. The minimum to open an account is $500.

For low-cost stock trades, reviewers say, it's hard to beat OptionsHouse, which offers a flat fee of $3.95; mutual fund trades are $9.95, and there is no account minimum. This discount broker is geared toward options trading, as the name implies, but it has a wealth of other offerings. According to Barron's, the average trader there places about 100 trades per year. Barron's ranks OptionsHouse ninth of 22 online brokers and gives it a rating of 4 out of 5 stars overall. TopTenReviews.com ranks this firm second of 18 online brokers, praising it for its low commissions and good customer service, and Stockbrokers.com names it the best broker for discounted trading.

ShareBuilder is noted for its automatic investing program, which allows investors to take advantage of dollar-cost-averaging by arranging to have a set amount invested weekly, biweekly or monthly. Automatic investments incur a commission of only $4 each. Market orders are $9.95. This program may be well suited to beginning investors, experts say, but they point out that automatic trades are for investments only; all sales are treated as market orders. Real-time trades are $9.95 each. There are no minimum balance requirements, and there are no inactivity or maintenance fees, unless you subscribe to one of the monthly plans with a fee. Investors express overall satisfaction with ShareBuilder; the broker placed second in overall investor satisfaction in the 2008 J.D. Power and Associates survey, and this year gets an overall satisfaction score of 4 out of 5 stars. Expert reviewers give it low marks, however. SmartMoney magazine ranks it 16th out of 17 brokers included in its 2010 survey, and neither Barron's nor Kiplinger.com  includes it in their most recent reviews. Experts say ShareBuilder's limited investment offerings and lack of banking services work against it.