How To Choose A Broker

How should we go about choosing our broker? Which company is the best fit for my trading style? We bring you the list of the biggest brokers in the US and attempt to identify the best of them.

Types Of Brokers

There are basically two kinds of brokers in America, namely full-service brokers and discount brokers. The full-service brokers offer a much bigger support to the client than the discount brokers - especially by providing analysis and research reports, trading tips, offering professional assistance and guidance on particular trades and so on. However, the client has to pay extra for these services, which implies that full-service brokers charge much higher fees for their service than discount brokers. Choosing a full-service broker may be convenient for people who are just starting in the market and often need a lot of advice and answers to their questions. Some of the biggest banks act as full-service brokers for their clients.

Although, for most of the traders, choosing a discount broker seems to be a better alternative. Especially for those that do their analysis themselves and rarely need telephone assistance during trading. Because discount brokers usually do not do their own research and offer less services than full-service brokers, they can charge clients much lower commissions. When trading through a discount broker, the client places his trades in an computer application that sends them to the broker via internet. That’s why the execution time of the trades is much shorter than if a trade is placed through a phone call – which is yet another advantage. Some well-known discount brokers are for example Interactive Brokers, Sogotrade, Scottrade, or thinkorswim.

There are several things to consider when choosing a broker.

Markets
The most important is that the broker should enable us to trade in the markets we are interested in. Major brokers offer trading in practically all US markets and exchanges.

Maintenance Fee
There are two basic things your broker can charge you. The first is a fixed fee for maintaining your account – which you pay whether you trade or not. The second thing you pay to your broker is commission, which is paid for every trade you make. Discount brokers normally do not charge any maintenance fees.

Commission Per Share
Yet, there are big differences between them regarding the commissions for trades. Some brokers set the commission for a trade according to the amount of shares that are involved in the trade. Such brokers are most convenient for investors and traders that trade stocks in smaller volumes (as a rule, less than 1000 stocks per trade). Interactive Brokers or Lightspeed set their commissions in this fashion.

Commission Per Trade
On the other hand, there are brokers offering the same fee for one trade regardless the amount of shares involved in the trade (so called flat fee). This kind of commissions is offered for example by Sogotrade, E*Trade or Scottrade These brokers are suitable for traders (or investors) who trade in larger volumes (more than 1000 stocks per trade).

Inactivity Fee
Nonetheless, with some brokers you have to be aware of the fact that if you do not make a minimum amount of trades for a certain period, you will automatically be charged an inactivity fee for example at Interactive Brokers or TradeStation.

Minimum Deposit
Besides, another thing to consider is that most brokers require you to make a certain minimum deposit in order to open an account. This is usually several thousand dollars. Although, there are even brokers that require a minimum deposit of $1, and hence they in fact require no minimum deposit to be made.

Types Of Traders

Now, let us review the particular categories of traders and find the most suitable brokers for them.

Swing Trader
This kind of traders leaves positions open for several days. The most important factor for them to consider is the commission per trade (as they make a lot of trades per month). Speed of trade execution is also important for them, but not as vital as it is for day traders because swing traders leave their positions open for longer. On the other hand, account maintenance fees do not matter for these people. Besides, it is important that these traders have access to real time data about prices and volumes traded from their brokers but these are nowadays provided by practically all major brokers.
Suitable Brokers For Swing Traders: Interactive Brokers, Sogotrade, Just2Trade
Suitable Brokers For Swing-Trading On Margin: Interactive Brokers, Just2Trade (they offer low margin rates)

Day Trader/Scalper
These traders open positions for a couple of minutes to a couple of hours and practically never leaves them open overnight. Timely execution of trades is essential for these traders – in order to prevent slippage (a situation when market order is filled at a worse price than is the price it was entered at). Another necessity is the accurate real-time data about prices and traded volumes. It is of advantage if the broker provides more detailed data, such as Level II Quotes or a detailed order book. In addition, it is very helpful if the broker offers real time market news, which he can relay for example from Reuters. Day traders usually make dozens or sometimes even hundreds of trades each month with high volumes, so they often benefit from flat fees. You have to be aware of the fact that day trading in the US is allowed only for accounts with a balance higher than $25,000. Traders with a lower balance may make only a limited amount of day trades.
Suitable Brokers For Day Traders: Interactive Brokers, Lightspeed, TradeKing
For Real Professionals: TradeStation

Small Investor/Trader
Investors with a capital of less than $5,000 have much less possibilities to choose from when selecting a broker. Most brokers require certain minimum deposit that the client has to make in order to open an account. This amount usually ranges from $2,000 to $15,000. For a small investor, both commissions for trades and maintenance fees, as well as other fees (e.g. inactivity fees, fees for wire transfers, etc.) are highly important, as they greatly affect his overall performance. For small investors, brokers with very low commissions are the most suitable even though they do not offer much of a customer support.
Suitable Brokers For Small Investor/Trader: Lightspeed, Just2Trade, Sogotrade

Investor
Investors, as compared to traders, trade relatively rarely. Usually after they open the account, they buy a portfolio of stocks, which they watch and once in a certain period (usually once a year) rebalance - or add particular stocks and remove others. This kind of people does not need the best order execution, as slippage is quite negligible for them, because they tend to hold their stocks for several years. It is also not that important how much commission they pay for the particular trade, because as compared to traders, they trade very little. However, it is important whether they pay a maintenance fee to their broker, as well as if they could be subject to inactivity fees if they do not make a trade for a longer time. That’s why it is better for them to choose a broker that does not charge an inactivity fee even though he may charge higher commissions for trades. Many investors may also require some level of customer service from their broker, especially getting research reports about the market.
Suitable Brokers For Investors (offer research reports): Fidelity, Charles Schwab, Scottrade, TD Ameritrade.
Suitable Brokers For Investors (low commissions and fees, no research reports): Sogotrade, Just2Trade, TradeKing, Zecco

Pros And Cons

Now let's have a look at the major U.S. brokers and their pros and cons.

Broker	Advantages	Disadvantages	Commissions
	- Minimum deposit to open an account is $500 - No inactivity fees - Better than average customer support - High customer satisfaction	- Low interest rates on cash - Extra fees for trading stocks with price less than $1 per share - It is not possible to reinvest dividends	$7.00 per trade $17.00 per phone trade $27.00 per assisted trade
	- Flat fee - No inactivity fees - A big company with many offices around the U.S.	- Sometimes slow execution - High commissions - Website is sometimes overloaded	$9.99 per trade $34.99 per phone trade $44.99 per assisted trade
	- Excellent trading platform - No inactivity fees - Free paper trading	- High commissions - Platform may be too complicated for some investors	$0.015 per share min $5.00 $9.95 per trade + $0.015 per share over 5,000
	- Low commissions with pass-through exchange rebates and greater discounts for volume trading - Choice of pricing structures to help minimize costs - Professional trading platform - Low margin rates - Free paper trading (when a real trading account is opened)	- Minimum account size $10,000 - Minimum monthly commission $10 (otherwise you have to pay an inactivity fee) - $10 per month for market data (waived if commissions paid for the month are higher than $30)	$0.005 per share min $1.00 max 0.5% of trade value
	- Minimum deposit $1,000. For a margin account $2,000 - Free wire transfers - Offers also banking products such as credit cards, certificates of deposit, term deposits, etc.	- High commissions for trades, especially when trading high volumes	$6.99-12.99 per trade + $0.015 per share over 2,000 $45.00 per assisted trade + applicable commission
	- Low commissions for trades under 10,000 shares - A well developed trading platform offering several useful trading tools	- Trading in the pre-market and after-market hours is more expensive	$0.01 per share $0.005 per share over 500 $4.95 per trade + $0.005 per share over 10,000
	- Very low commissions - No inactivity fees	- Slow execution - No interest paid on cash - Bad trading platform - Bad customer support	$3.00 per trade $0.004 per share min $1.00 $27.00 per assisted trade
	- A very good trading platform that enables backtesting your trading strategies on historical data - You can program your own automated trading system - Rapid execution, especially for ECNs	- $99.95 monthly platform fee in case the trader does not meet the minimum requirements (trading at least 5,000 stocks or 10 future contracts, in fact an inactivity fee).	$0.01 per share $0.006 per share over 500 $6.99-9.99 per trade + $0.005 per share over 5,000
	- minimum deposit only $1,000 - a wide network of offices around the U.S. - trading of ETFs managed by Schwab and mutual Funds OneSource® is free - good customer support - banking services: credit cards and checking accounts	- quite high commissions - complicated online trading	$12.95 per trade + $0.015 per share over 1,000 $17.95 per phone trade $37.95 per assisted trade
	- Trading certain ETFs is free - Offers most high-quality research reports free of charge - Minimum deposit $2,500	- Rather high margin rates	$8.00-19.95 per trade + $0.015 per share over 1,000
	- Low commissions - Good customer support - Community of traders and a discussion forum on the broker’s website	- No interest on cash in your account	$4.95 per trade $4.95 per assisted trade
	- Very low commissions when trading stocks in lower volumes - Excellent execution - Platform offers several sophisticated research tools to detect market imbalances	- Sometimes problems with the stop/loss order activation - System sometimes overloaded during rush hours	$0.00395 per share + $0.001-0.004 per share exchange fee $15.00 per phone trade
	- 10 free trades in case your account balance is higher than $25,000 or if your number of trades is higher than 25 - No minimum deposit or minimum balance on the account - Community of traders at the broker’s website	- Frequent technical problems - Not a very sophisticated platform (you trade directly through your web browser)	$4.50 per trade 10 free trades/month with $25k+ balance or 25+ trades/month $19.99 per assisted trade
	- One of the lowest commissions in the industry - Low margin rates	- No interest paid on cash in your account - It is not possible to modify an order (you have to delete it and place a new one) - Bad customer support	$2.50 per trade
	- One of the lowest commissions in the industry - No inactivity fees	- Trading in the pre-market and after-market hours can be executed only by phone	$2.95 per trade $2.95 per assisted trade
	- Broker's assistance without extra fee - Wire transfers free of charge - Free paper trading	- High commissions	$9.95-14.95 per trade + $0.015 per share over 1,000