EmailA recent trend noted by reviewers is that online brokers can no longer be easily separated into categories, such as premium and discount brokers or web-based and software-based brokers. There are fewer differences in terms of the cost of trades or the research and trading tools on their websites to set them apart from each other.
Experts say to look for the following features when choosing an online broker:
- Think about what kind of trader you are. If you trade often, then the lowest commission may be important. If you buy stocks occasionally and hold them for years, then good customer service may be worth more to you.
- Read everything on the broker's website about commissions and fees. Does the commission change based on type or size of order? Look for additional fees such as an inactivity fee or fees for closing your account.
- Check if there is a minimum amount needed to open or maintain an account, or to receive low commissions and trading tools.
- Look for free trading tools, such as real-time stock quotes and free market research and education.
- It may make your life and tax accounting simpler to have all your investment accounts in one place. See if you can trade investments other than stocks, such as Exchange Traded Funds (ETFs) and mutual funds. Note which mutual funds are available and what the fees are for trading. Will the broker let you open a retirement account?
- Compare the interest rate on cash in your account to what you can get elsewhere.
- Find out the broker's policies on security. Look for guarantees that your personal information is protected and that your account is insured. Look for articles online about the broker to see if there are any recent reports that might cause you concern.
Many financial writers -- from Andrew Tobias in The Only Investment Guide You'll Ever Need to David F. Swensen of Yale University in Unconventional Success: A Fundamental Approach to Personal Investment -- suggest that you may not even need a broker. They believe that it is virtually impossible for an individual investor to beat the stock market, so they recommend buying and holding low-fee no-load index mutual funds purchased directly from a mutual fund company to form the core of a personal investment portfolio.