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Best Brokerages for Beginners

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Suppose you have some extra cash in your bank account and you have had your eyes on the market for a while. “It’s the perfect time to get in,” you think, and rightfully so. Investing is easy — you can just place a call with your personal broker and have them put in an order for a few shares of Tesla for you. After that, you will sit back and watch your hard-earned money work for you.

Sadly, it’s not quite that simple. While starting to invest through the use of a brokerage account is easy, there are actually many ways to trade. Most market transactions today occur online and without real-time guidance from a broker or financial professional. Fortunately, high-quality online brokerage accounts offer zero or minimal fees, low account minimums, access to institutional research, and screening tools that can assist your investment choices. These “discount” brokers traditionally make money by charging user fees. However, by removing the person-to-person aspect of broking and delegating responsibility to investors themselves, these firms can cut costs.

In the long run, the amount of money that you will be charged in fees has a relatively large impact on your portfolio’s value. Minimizing expenses by purchasing cost-efficient securities, like low-expense-ratio funds, is important, but using a low commission or free brokerage account will save you lots of money in the long run, especially if you’re an active trader.

That being said, not all brokerages are created equal. The brokerages listed below are not subsidiaries of large banks. For example, WellsTrade, Wells Fargo’s online discount brokerage, appeals to customers of that bank but makes little sense for non-customers. Other examples are Bank of America (Merrill Edge), JPMorgan Chase (You Invest) and Ally Bank (Ally Invest). Let’s start the reviews!

Robinhood: The Millennial Favorite

This platform is popular among young adults and millennials for its discount security options and clean mobile UI, making trading very easy. It was first known as the pioneer of commission-free online trading, but the industry has largely caught up with the trendiness of discount brokerages. Robinhood’s biggest benefits today come from an intuitive, informative interface, the ability to purchase fractional shares (allowing investors to purchase any dollar amount of a stock), and broad no-commission trades. For more advanced users, options and crypto are available with zero fees. Access to gold requires a $5 monthly fee and yields upgraded use of Morningstar and NASDAQ institutional analysis. Interestingly, uninvested cash can be linked to a Robinhood debit card and will earn a non-negligible interest rate without being linked to a money market account (0.30% APY at the time of writing this).

However, account options are limited. The firm offers no IRAs or tax-free/tax-deferred accounts and does not deal in mutual funds or direct bonds. Being built from the ground up as an Internet brokerage, Robinhood has limited customer service and generally limits your use of the platform to your knowledge of investing. This can be a benefit or a drawback, as there are no advisors “urging you to buy into this fund now” or “opening up the possibilities for a margin account”, but there is little help when you may want it.

Verdict on Robinhood

Robinhood is a great place to put your money if you already know how to invest and want to minimize your costs, as well as minimize the amount of time you spend tooling around on its platform, making it suitable for active traders. However, if you are planning on funding a retirement account, want access to high-level market opinions and research, or plan on pocketing your cash directly in bonds or mutual funds, it may be best to look elsewhere. With the relative ease of operating the platform, speculators beware! Alternatives include E*TRADE and Firstrade (both offer taxable and tax-free retirement accounts).

Fidelity: Discount Broker with Creature Comforts

Fidelity is currently regarded as one of the best online brokerages — and for good reason. This platform charges zero commissions for domestic and international stocks, ETFs, index funds, and many mutual funds (no-commissionmutual funds are no-load funds). Options are $0.65 per contract. Bonds and CDs (certificate of deposit — a federally-insured investment) are also available. No account minimums are necessary, but minimum investments into specific index or mutual funds may be necessary. With that said, this firm introduced the Fidelity ZERO funds, which have no minimum and no expense ratio. That’s right – you could pay nothing for them to hold your money in a managed fund. Plus, their expense counterparts have industry-low ratios that are even lower than Vanguard’s Boglehead-praised index funds.

Aside from excellent trade options, Fidelity offers great customer service and robust educational tools for testing market strategies (free Active Trader Pro software) and multiple third-party research sources that are completely free of charge. Unlike Robinhood, IRAs are among the many account types that Fidelity offers. Excess cash can automatically be invested in a money market account, earning you interest, and margin accounts are available, albeit with less ease than Robinhood’s margin offerings. The trading platform is not as buttery smooth as that competitor’s, but it makes up for that deficiency in its capabilities.

Verdict on Fidelity

There really is nothing bad to say about this platform. Fidelity is redefining the discount broker experience while retaining the good qualities of a reputable investment firm. For passive and somewhat active investors, Fidelity is hard to look over. Its index and mutual funds are especially highly regarded, reflecting its continuing reputation as a broker. To make the best use of this platform, you should know a bit about the exchange of securities already. Alternatives include Vanguard and Charles Schwab.

TD Ameritrade: The Ultimate DIY Choice

TD Ameritrade offers another highly-rated trading platform that has essentially the same commission structure as Fidelity’s, minus easy access to the Fidelity ZERO funds. It is slated to merge with Schwab’s brokerage services sometime in the near future, but for now, it remains a separate entity. The TD Ameritrade platform is highly similar to Fidelity’s in the way that it offers expansive trade and account options — everything from traditional brokerages to rollover IRAs to individual 401(k)s, joint brokerage trusts, educational 529 plans, and much more. Once you open up an account, you can trade nearly anything: commission-free stocks and ETFs, mutual funds ranked by Morningstar’s Premier List (typically a paid feature), bonds, CDs, annuities, and options, futures, and forex on partner platforms like ThinkOrSwim.

The sheer amount of information and choices at your fingertips on TD Ameritrade’s platform may be overwhelming, and it may take more than a few clicks to get to a place where you can make more complicated options and futures trades (typically ThinkOrSwim). Additionally, penny stocks incur a commission of $6.95 per trade, and uninvested cash earns a minuscule interest rate if not swept into a money market fund.

Verdict on TD Ameritrade

TD Ameritrade is not a broker aiming to undercut its competition; rather, the firm seeks to give traders maximum customization of their account type and trading abilities. The amount of research and market information available to investors in real-time is commendable. The ThinkOrSwim platform provides both access to the execution of complex orders, as well as advanced simulation programs to assist users in testing their ideas. For experienced active and passive investors alike, TD Ameritrade’s brokerage services are wonderful, but the incredible amount of information available through their platforms comes through the hidden costs of carrying out more esoteric trades. An alternative is Interactive Brokers.

Conclusion

Hopefully, this guide to choosing a brokerage account can help guide you in your investing pursuits. Keep in mind that just choosing a good brokerage isn’t enough and isn’t going to help you if you don’t ultimately understand how to invest. These brokerages have many resources to educate you but ultimately, it’s up to you to decide the kind of investor you want to be, the kinds of investments you want to make, and how much time you want to spend learning how investing works.

About the author

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I write about personal finance, wealth-building, and the stock market. I am a freshman at the University of Florida.