It is all the rage these days: investing online rather than through a stockbroker. You have seen the ads and wondered if it is for you, right? Online trading platforms through companies like Scottrade, Charles Schwab, and TD Ameritrade promise the best in Internet trading access and the ability to execute trades quickly. Yet online brokerages differ in quality and service. How would you know which one to choose? BankShout is here to help.
I always like to remind our readers that brokerage accounts are not FDIC insured and can lose money. Trading isn’t for everyone; I am not all together sure that many of the people who trade individual stocks online have any business doing so, since markets are so complex and even professional traders lose their way (and their money). Having been warned thusly, only you can decide if you want to trade online, and what company you would like to use. If you are going to take the plunge, consider the following:
- Amount available to invest
- Your trading style
- Company fees and comissions
- Customer service options
Investors will have varying amounts that they can put on the line. Before opening an online trading account, you need to know your amount available to invest, since minimum balance requirements can be a factor in your choice of brokerages. TD Ameritrade, for example, requires at least $2000 for non-IRA accounts, while a Scottrade account can be opened for just $500. Some full service banks offer additional perks in this area, too: Charles Schwab will waive their minimum balance if you link a Schwab checking account or have $100 automatically deposited to your brokerage account each month.
Next, what and how do you want to invest? Stocks aren’t the only things available, after all; there are also options contracts, exchange traded funds (ETFs), bonds, and fixed income investments, to name a few. Of course, what you trade will also depend upon your trading style. Value investors (in it for the long term, in other words) need considerably less attention and service from their online brokerage than do day traders, who require real-time price quotes and trades.
No less important are the company fees and commissions. Pricing structure can be complex and confusing. If you are just starting out in online trading, you may want to consider the brokerage with the simplest fee structure, so that you can concentrate on analysis and not figuring out how much you are going to pay for a given trade. In this realm, Scottrade charges $7 per trade (so long as the equity is above $1 in price), while ING Direct charges only $4 per trade. Schwab and Ameritrade have much more complicated fee/comission schedules, but all online brokerages charge extra for certain things, such as limit orders or inactivity.
Finally, you’ll want to know your customer service options. Including analysis reports, customer service can elevate a brokerage and make its platform that much easier to use. Among online brokerages, Scottrade has far and away the most number of physical locations, or U.S. branches, for instance. Knowing if the company offers chat services or answers the phone quickly can help you to narrow down your choices for online investing.