Introducing Brokers – What Are They, And Which Is Best

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Why These Online Brokers Are the Best—and What They Could Do Better

In the course of the past year, the brokerage industry has undergone a transformation in which free trading is now the standard.

The trend started in October when Interactive Brokers Group (ticker: IBKR), Thomas Peterffy’s pioneering Greenwich, Conn., brokerage, said it would cut commissions on equity trades to nothing. Charles Schwab (SCHW) made that same offer days later. Rival brokers E*Trade Financial (ETFC), TD Ameritrade (AMTD), Fidelity, Ally Invest, Merrill Edge, and Vanguard soon followed.

It begs the question–which of the online brokers is king in this new landscape and how do they differ? Barron’s takes its annual look at the top online brokers, highlighting their strengths and weaknesses.

Fidelity

For years, Fidelity (5 stars) has led the way in online broker sites with solid service, ease of use, and innovative technology. Far from sitting back, Fidelity added powerful features over the past year, while amping up its Active Trader Pro site. Its offering is hard to beat, which is why it garnered a first-place tie.

Notably, Fidelity unveiled fractional trading in January, targeting younger, less-well-heeled investors. Millennials can ante up a modest amount —say, $500—and invest in companies like Amazon , recently trading at $2,150. Fidelity’s goal is to attract an investor early on and she will stick with you for the long haul.

Fidelity has led in technology, both for investors and traders. Within Active Trader Pro, Trade Armor visualizes potential profit and loss, providing a better sense of risk and of when to get in and out of trades. Fidelity also scored by making its enormous research universe more accessible through sophisticated screening tools that filter everything from sustainable holdings to analysts’ ratings. And it has worked hard to make sure experiences across platforms are uniform and don’t require a lot of instruction. That ease of use extends to its mobile offering, one of the best.

Interactive Brokers

Interactive Brokers (5 stars) is a gold mine for active traders. Its Trader Workstation, redesigned in 2020, sets the standard for active trading platforms. In recent years, it has worked hard to attract more casual traders. One example: In October, Interactive launched IBKR Lite, which offers zero-commission trades on stocks and exchange-traded funds, with no minimums.

Its charting and screens are second to none, tracking more than 500 data points. Last year, it added both historical and implied volatility. The Fundamentals Explorer feature gives users free access to fundamentals information, analyst ratings, and research on thousands of companies, while also providing a competition comparison.

One of the most useful new services is its For You notifications. These cover matters ranging from dividend postings to whether a deposit has cleared. The notifications evolve over time, depending on individual usage, thanks to artificial intelligence.

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Interactive Brokers’ mobile site is also first-rate. One nifty new feature: a privacy button that allows a user to hide account values when using the app in a public place.

E*Trade

E*Trade (4½ stars) continues to impress, combining well-thought-out platform designs with valuable and intuitive research tools, such as an easy-to-use portfolio analysis. Its redesigned mobile app, launched in December 2020, is top-notch. Morgan Stanley has indicated that E*Trade will remain its own brand.

E*Trade offers a number of features worth noting. A newly designed quotes page is heavy on visuals, which provides a quick and clear understanding of everything from analyst opinions to social sentiment. A chart-recognition tool includes explanations of technical events. And a unique tool called Strategy Seek attempts to discover trading opportunities, based on an investors’ market outlook, and assesses risk.

E*Trade also provides so-called paper money for those interested in options trading, but reluctant to jump in with actual cash. Paper money allows users to practice trades before they invest real money. The broker continues to put a lot of effort into tools for what it calls the “distribution phase” of an investor’s life.

TD Ameritrade

This may be the last year we assess TD Ameritrade (4 stars) if its proposed merger with Charles Schwab goes through. The broker again leads the way in adapting consumer-related technology. While TD did well in mobile, it trailed our leaders in subcategories involving trading. We believe others have overtaken TD Ameritrade in some aspects of site customization and functionality, which is why it fails to rank higher.

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However, TD Ameritrade shines for advances it has made in ease of use. This includes partnering with Apple Pay and Tencent (in Asia) to enable account funding in real time, and with news and data provider Benzinga to provide information on why a stock is moving up or down.

The prospect of Schwab swallowing TD Ameritrade worries many avid users of thinkorswim, TD’s groundbreaking active trading platform. In the past, thinkorswim was criticized for being too daunting for less active traders. Recently, TD has tried to make it more accessible, for example, by introducing Chart Describer, which explains some of its charts very clearly.

Charles Schwab

If there’s an award for most-improved online broker, Charles Schwab (4 stars) should get it. Its fifth-place finish is a credit to its efforts to offer sites with more flexibility and adaptability. Its desktop platform now offers customizing options and dynamic functions similar to those of its higher ranked rivals, although its mobile platform continues to be, in our opinion, too static.

Schwab’s customer service is second to none. Our hope is that when it buys TD Ameritrade, Schwab will embrace the smaller broker’s superb tools and offer a killer site.

tastyworks

Tastyworks (3½ stars) climbed two spots this year and finished in sixth place. In many ways, tastyworks is the most difficult site to assess. Its technologically advanced active-trading platform and quirky take on research and information attracts a small, but devoted—even zealous—following. The technology, usability, and research approach are heavily weighted to options trading, which accounts for over 90% of its total business. Devotees love the site. But if you’re not an active or options trader, this online broker might not be for you.

Merrill Edge

Merrill Edge (3½ stars) slipped two notches, to seventh place. Part of this reflects the fact that it has been outpaced in mobile and trading functions, an area where Schwab has improved. Merrill Edge continues to excel in presentations aimed at novice investors, through easy-to-understand describers it calls Stories. Early last year, it added funds to stock and portfolio explanations. That straightforward approach now extends to retirement planning.

Ally Invest

Ally Invest (3 stars) is improving, but its eighth-place finish reflects the fact that it needs to elevate its offerings if it wants to compete head to head with other mass-market brokers. Ally has said that improvements are coming.

SogoTrade

SogoTrade (2½ stars) remains a laggard. Its site fails to offer basic elements necessary to attract a broader clientele. Reflecting its origins—it’s owned by a group headed by Jonathan Yao, who headed Scotttrade’s Asia-Pacific operation—it attracts a large number of Chinese investors. It also appeals to cryptocurrency traders with a well-ordered crypto platform.

What Is an Investment Broker?

If you’re getting started in investing, an investment broker can be a great asset as your connection to the market. Investment brokers serve as go-betweens for buyers and sellers on the stock market. They enable their clients to purchase stocks, bonds and other securities from the exchanges.

What Is an Investment Broker?

An investment broker is a person or institution who conducts investment transactions on behalf of a client. Often, an individual broker works for a large brokerage firm, like Merrill Lynch or Morgan Stanley. You work with this person to buy and sell investments. This is what’s known as a regular broker. You may also find broker-resellers who act as intermediaries between a client and a larger broker instead of managing investments directly with a client.

Depending on the type of service they offer, a broker can also provide personalized investment advice and retirement planning help. This is known as a full-service broker. To the opposite, discount brokers just serve to execute the trades you want to make.

A broker can also refer to the firm itself. In this case, the firm acts as the transaction agent for the customer. This occurs more often online and the firms provide only the basic service of buying and selling investments.

Do You Need a Broker?

In order to make investments like buying a selling stocks, you need a broker. Brokers are specifically licensed to make trades with securities exchanges. However, you can choose how much service and support you want from your broker by choosing either a full-service broker or a discount broker.

A full-service broker is typically an agent of a brokerage firm. You’ll meet with a full-service broker to discuss your investment goals do they can conduct research on your behalf and offer personalized advice. They should also keep you up-to-date with market trends, stock performance and tax laws. A full-service broker is best for individuals who have a significant investment portfolio that they want managed by an expert. It is important to find a broker who has a fiduciary duty. This means they must act with your best interests at heart and not for third-party commissions.

Discount brokers, on the other hand, simply execute the trades you order. These investment brokers don’t provide any advice or review of your portfolio. If you participate with an online brokerage, the company you have your brokerage account with, like E-Trade or Ally, serves as your discount broker.

How Much Do Brokers Cost?

Investment brokers generally charge per trade, with costs varying based on the level or service offered by the broker. Discount brokers offer one simple service, and for that, they charge a low fee. Expect discount brokers to charge somewhere between $5 and $30 for each trade. Full-service brokers, on the other hand, roll their research and advisory service costs into their trade fees, resulting in trade fees of $100 – $200 each. Full-service brokers typically also charge an annual maintenance fee for their services.

It is also important to remember that most brokerage accounts have minimum opening balances, often of $500 or more. Be sure you understand all a broker’s fees before opening an account with them.

How Do You Find an Investment Broker?

There are many brokers and brokerage firms out there. While it may seem ovewhelming, it does give you the opportunity to choose the broker that offers what you want. Again, figure out what kind of investing you want to do, how much you want to pay and the type of broker you’ll need. Then, you can compare your preferences to what each firm offers.

Do you want a full-service broker or a discount broker? Consider how much help and advice you want in your investing to make this decision. Are you someone who will be making a lot of trades? If so, look for a broker who charges low trade fees. Do you want to invest in stocks, bonds, options, mutual funds, ETFs or a mix? Make sure your chosen broker offers those types of securities. Also consider the availability of online, mobile or over-the-phone trades, account minimums, monthly or annual fees and whether they allow check writing or other withdrawal methods from the account.

Before opening an account, you’ll want do some research into the individual broker as well. Brokers must be registered with the Financial Industry Regulatory Authority, or FINRA, and you can research the history of both individual brokers and brokerage firms on the FINRA website. Informational available includes credentials, operations information, employment data, and more.

The Takeaway

Having an investment broker is a crucial part of investing. You’ll need one to make your trades within the stock market. If you’re new to investing, you might want to start with a full-service broker who can more directly manage your investments. Once you think you’ve got the hang of it, a discount broker might make more sense so you can save money on broker fees.

Which broker is best for beginners? Interactive brokers or TD Ameritrade?

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Do you want a hug or do you want better prices?

TOS is much more user friendly than IB but IB’s commissions are far lower unless you are trading large blocks of shares. TOS also has far better option analytics.

For a beginner, the platform’s sophistication is really irrelevant to you. You’re most likely to be doing basic buying and selling and any platform can do that easily.

Open up a demo account. Not only is it good for practicing paper trading but it will help familiarize you with the platform you choose.

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