Whatever kind of trader you are, whatever the instruments you use, what strategy you rely on or what timescale you trade, a key part of your success in the long term is having the right broker. Your brokerage firm can offer a wide range of services, and a broad range of costs that go with them.
Finding the right brokerage means balancing the services needed with the cost for each transaction. Some may offer a percentage, that can turn out more economical for those who trade frequently, while others charge commission as a flat fee per transaction. The choices made here with brokerages impact every aspect of your trading business, which is why it is such an important choice for every trader to make.
The History of Brokerage Houses
The history of brokerage houses surprises many as they are often viewed as a relatively modern development due to the recent push to electronic brokerage services as the internet has taken over. However, the first brokerages appeared as far back as the 11th Century in France. Brokerage houses gained real popularity in Amsterdam and other Dutch-speaking cities such as Flanders in the 1300s. At the center of commerce at the time, these important cities are really where the idea of brokerages took a firm hold and soon after other major ports such as Venice began trading in government securities. This extended the reach of the brokerage concept.
In terms of brokerages as we recognize them today, the first houses that offered a way to buy shares of stock in various organizations were formed in London and it was these brokerage houses that formed the London Stock Exchange in 1801. The system of regulations and memberships that were put in place was copied all over the world, including Chestnut Street in Philadelphia, later to become the New York Stock Exchange after it moved location. It is here we see names that are instantly recognizable as companies such as Morgan Stanley and Merrill Lynch were formed to broker stocks and other securities on this New York market.
In the 1900s the role of brokers began to change, as they started quoting both buy and sell prices simultaneously, essentially becoming market makers, rather than a strict ‘broker’ as people had been used to. This move required further legislation to prevent insider trading within brokers, creating a system known as Chinese Walls that prevents communication between different departments inside of brokerages.
However, this new position as market maker proved very profitable and led to the growth of the large brokerage firms we know today. Change never stops of course, and now most brokerages use online platforms as the internet has taken over. With a variety of services and costs, finding the right broker can be a challenge, but there are some things you should always look for.
Top stock brokerage firms
As with any market, there are some firms who stand out from the rest, these are brokerage firms that have a proven record of delivering outstanding service to customers, with reliable trading, easy to use systems and no-hassle money withdrawal. Beyond that though, they can be quite different, specializing in different aspects of trading and offering often very different services. We are going to look at each has to offer to help you understand which is best for your needs. First, we start with an overview of the top brokerages available today:
TD Ameritrade is a broker that offers a comprehensive service, with exceptional customer service and fantastic trading and research platforms for both desktop and mobile devices.
TD Ameritrade offers a broad range of instruments to trade, covering stocks, options, mutual funds, and ETFs. In addition, they also have a broker-assisted trading service for a fee, designed for anyone who needs investment guidance.
It includes a wealth of educational material as well, and with no minimum investment required to open an account, is one of the best options for new traders. However, fees are higher than others, so if you do not need the extra help that they offer, or are an experienced trader, you could save money elsewhere.
Interactive Brokers was established over 40 years ago and they have always been a value brokerage. They offer some of the lowest commissions around with the lowest margins and quality order execution.
Interactive brokers have the most complete range of instruments to trade available, with 120 market centers in 26 countries available. These cover stocks, options, ETFs, futures, bonds, CFDs, and Forex, ensuring all your trading can be under a single account.
They are primarily aimed at professional traders. Whatever you want to trade, you can through IB’s Trader Workstation platform. However, with little built-in research or any education offerings, this is a brokerage for the experienced trader. If that is you, here you find everything you want, and the best chartering package available to help you.
A brokerage built for the 21st century, Robinhood is an app-based broker that offers commission-free trading. With no fees and commissions, this may seem like the ideal option.
With Robinhood, you have access to a number of markets, including Stocks, Options and Cryptocurrencies. The simplicity and ease of use, along with no-fee trading, make this a very attractive offering for new traders.
However, it lacks many of the services you may want from your broker, with no trading platform, research, or training. For someone who has alternative provision for charts, research, and has a good understanding of trading, the simple interface and feeless transactions are a great option.
Ease of use is central to Fidelity’s brokerage service. From the trading platform to research, education, and the account operation itself, all features are well designed with intuitive interfaces that make this one of the easiest brokerages to use. The trading platform is also highly customizable, offering a broad range of powerful tools for the serious investor behind its simple interface.
Fidelity offers the ability to trade a wide range of instruments including stocks, options, ETFs, and over 12,000 mutual funds. Like all 91 ETFs available, 4,000 of the mutual funds can be traded commission-free.
Low commissions and no minimum account balance add to its appeal. This is a broker that manages to provide the ease of use a beginning trader may want, while still providing the in-depth trading experience and powerful tools more advanced investors expect.
Another broker that provides a comprehensive service, Charles Schwab, provides two trading platforms that provide a strong set of tools. Charting is also good, although not as flexible as some, and overall, the interface provided is easy to use, despite having every feature you may need.
Charles Schwab provides trading on a wide variety of stocks, options, futures, ETFs and Mutual Funds. With low fees and easy trading, it is a comprehensive package that covers most trader’s expectations.
Your account includes comprehensive research tools that are industry leading, and education that even includes in-person workshops at offices around the country. However, unlike others, there is a $1000 minimum for opening an account, which may push those simply looking to try trading out on a smaller scale towards others with no such restrictions.
The brokerage offering for Merrill Lynch is known as Merrill Edge and it is owned by Bank of America. You can seamlessly link a Bank of America account to a Merrill Edge account and that alone can make this the most tempting broker for some. That would be to undersell what this broker offers though. With great research tools provided by Morningstar and easy to use interface, it has a lot to recommend for beginners and advanced traders alike.
Merrill Edge is a comprehensive brokerage, offering trading on stocks, options, mutual funds, and ETFs. Although commission fees are higher than some, the high level of support and tools provided ensure that this is still a broker that provides good value.
The two trading platforms are comprehensive, with the web-based version functional but uninspiring. However, if you make more than 15 trades per quarter, or hold more than $50,000 of assets in your trading account, you also get access to their MarketPro platform, which is a custom version of the award-winning eSignal trading platform making this probably the most comprehensive trading tool any broker offers today. With a complete service, this is another great option for beginners.
As with Robinhood, this is an app-based broker that is designed for trading on the go. Limited to US and Canadian stocks, this is a very basic offering for traders. However, the lack of fees and a simple, intuitive interface can make this a less intimidating place to start their trading journey.
With commission free trades and real-time data-based charting, along with a news stream for research, it doesn’t match the best platforms for features, but it does perhaps exceed its app competition, Robinhood.
Day Trading Brokers
For day trading, traders need real-time data-based platforms with responsive trading controls. Because some types of day trading require trades to be opened and closed in minutes, or even seconds, automated open and close orders can be incredibly useful. Platforms such as Interactive Brokers and MarketPro from Merrill Edge are well suited to this, with Fidelity and Charles Schwab also providing exceptional day trade support.
However, what also matters for day traders, who place many trades a day, is low fees. In this respect, Interactive Brokers, with extremely low fees and fantastic trading platform are the best option. However, while they lack the trading platform and comprehensive research, as a pure trading solution, the two app-based brokers, Robinhood and WeBull are well suited to day trading if trading data and research are sourced elsewhere.
The commissions charged per trade matters because it is part of the expense that traders have to incur before seeing profits. The higher they are, the more your trading costs before you are in profit. For those who trade frequently, lower costs are obviously better, but in general, you usually get what you pay for. In this sense, lower commission fees usually mean less support and additional features.
In terms of cost, TD Ameritrade charges $6.95 per trade, with an additional fee for options. This is matched by Merrill Edge. Charles Schwab and Fidelity Investments come in at $4.95 per stock trade, with Interactive Brokers asking $0.005 per trade, a significant saving. However, if you don’t maintain a $100,000 balance or spend at least $30 in commissions each month, then you incur inactivity charges that can be as much as $20 a month. For low-frequency traders, Interactive Brokers does not offer the savings that there may first appear to be.
There are two completely commission-free options, these are the two app-based brokers, Robinhood and WeBull. For both, there is no charge for any trade. This makes them ideal for high-frequency traders, that is, people who make a lot of trades in small blocks of shares. Day traders are the obvious people who fall into this category, but it can include other types of traders too including longer-term traders who scale-in to positions.
Instead of commissions, which are the obvious way other brokers make money, these commission-free brokers instead leverage deposited money. They lend it out to other traders for margin trading, keep a balance in high-interest banking accounts and invest in ultra-low risk bonds. Also remember, that while these services are commission free, you can still incur charges. For margin trading, they charge a monthly fee for the account, while throughout the service there are delays, waiting two days after depositing funds before you can access them and so on. You can pay to bypass these delays, another source of income.
In addition, these commission-free brokers often sell your orders to market makers to fulfill, for which they get paid a small commission. In this way, they are constantly building revenue even without a headline fee.
Others such as Charles Schwab and Merrill Edge both include a range of no fee ETF’s which gives traders an option if they are trading very specific instruments. While trading with no fees does sound attractive, it usually comes at a price. The two app-based brokers are a no-frills experience, offering little in the way of assistance or comprehensive platforms to support your trading the way a commission-based alternative does. For many traders, especially those just starting out, having all the tools and support included in an easy to use package is worth the relatively small fee per trade.
Level 2 Stock Quotes
There are three levels of data commonly used for stock trading:
- Level I – Basic real-time bid/ask price data used to plot charts.
- Level II – This level of data also includes current orders for a given stock or another instrument. This allows you to see all prices on offer, along with the volume of orders waiting to be fulfilled.
- Level III – This is the highest level of data and it includes additional data and access above level II. This is restricted to specific organizations and is not available for retail traders and investors. It is usually used on trading floors by brokers and market makers.
While most brokers include level I data provision for their trading platforms, Level II is incredibly useful to have and well worth looking out for. The extra data gives you the information needed to accurately assess supply and demand, which is incredibly important for many trading strategies.
Platforms such as Interactive Brokers, MarketPro from Merrill Edge, and TD Ameritrade’s ThinkOrSwim all feature the level II data that can really make a difference to your trading efficiency.
The charting software that brokers provide may seem simple, especially for new traders. However, for traders, all that fantastic real-time data, your own strategies for trading, all of it, is displayed in that chart. That is why it is important. Ultimately, everything you do with trading comes down to that chart and the tools it provides.
Here, Interactive Brokers has an incredibly comprehensive solution. However, it is not the easiest to use for someone starting out. TD Ameritrade’s ThinkOrSwim and Merrill Edge’s MarketPro are both exceptional, not just providing all the tools you may ever need, but they do so while maintaining ease of use for those who want a simpler approach.
Both offer a lot of customization, so you can create the workspace that suits your style, with intuitive controls for ease of use. Importantly they all offer a range of built-in tools for research and strategies. From Fibonacci levels to moving averages and almost any indicator you can think of, you can quickly add any to your chart.
To make trading easier, they also allow trading setups directly from the chart, so you can set orders and so on based on actual chart values in front of you. In addition, with both mobile and desktop platforms they give you everything you need for trading success wherever you are.
Interactive Brokers has all this and more, with over 400 included indicators and powerful backtesting tools built in. However, their charting platform is aimed at professional traders and is a challenge for the inexperienced. If you are a seasoned trader, it is easily the most comprehensive chart platform available, but if you are looking for ease of use then others have more to offer.
With comprehensive, powerful tools and a simple interface that is easy to pick up, TD Ameritrade’s ThinkOrSwim and Merrill Edge’s MarketPro the best options in this group for charting. It is here more than anywhere that the no-frills options of the two commission-free brokers really stands out. With very basic charting they simply cannot compete, and for anyone who will need charts, the cost of good software and data can negate any savings made through no commissions compared to the other options.
There are options for every kind of trader, every budget and every expectation when it comes to brokers. However, you must consider all aspects when choosing the broker that is right for you. As we have seen, what may seem like a bargain, such as no commissions, could prove even more expensive long term if you need features like research and charting and must pay for it yourself.
For new traders, the options that feature plenty of education and support, along with a simple interface are a great choice. The last thing you need in those first few trades is to be fighting against the interface as well. Simple trading lets you focus on the important part.
All these brokers have something to offer, but the key is to find the one that offers the things you need.