Comparing Online Brokerages

by FinancialTips4U

Researching for online brokerages can be as tough as shopping for appliances.

Comparing online brokerages can be as challenging as comparison shopping for appliances.   Some brokerages offer different features, different pricing, different customer service, and even different types of securities you can trade. Charts Here are some of the most important things to look for when comparison-shopping for an online brokerage.


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Trade Commissions

Beware the splashy commercials offering low commissions.  There are often asterisks next to the fee, indicating that this may be the introductory price.  Some have tiered rate structures based on trade volume, and you may have to make many more trades than you expect to qualify for the lowest rate.  Finally, if you trade options, compare those prices as well.   If trade commissions for your final candidates are equal, option pricing may be the tie-breaker.

Investment Products

Some brokerages offer just about any kind of investment product you could think of.  They may offer everything from stocks, bonds, CD's, mutual funds, margin investing, IRA accounts, foreign stocks, extended hour trading, and even the ability to buy precious metal bullion.  For example, Firstrade online brokerage offers a wide range of investment types even though it is considered to be a discount broker. Other brokerages may be strictly no-frills and offer just stocks. 

Research Tools

One of the big differences among online brokerages is the ability to conduct research into various types of investments.  Some brokerages offer data on stocks, options, ETFs, mutual funds, fixed income instruments, and even IPO's.  You can read up on prospectuses, get complex data regarding option prices in relation to stock volatility and timing of expiration, how a mutual fund performs against its peers, and years worth of individual company financial documents.  Having all of this in one place may translate to real dollar value for you as an investor.

Steps to Take

The most important things to consider when comparison shopping:

Don't be lured by pricing alone.

The biggest mistake you can make when comparison shopping for an online brokerage is to just jump at whichever brokerage has the lowest trading fees.  You may find that a critical tool or feature isn't available, and force you to find a whole new brokerage house and transfer all your assets.


I recommend:  Make a spreadsheet that lists all the things you require so you can compare candidates side by side.


Create your own annualized fee structure

Try to estimate exactly how much fee-generating activity you will have in a given year for each candidate, and then compare them side by side.   You may be surprised to find that the brokerage with the lowest trading commissions doesn't end up being the cheapest choice.


I recommend:  If the total fees are close, go with whichever candidate has better customer service when you call them to enquire about opening an account.

Tips & Tactics

Some useful advice once you've made your decision.
  • Get all your paperwork in order before sending everything in.  There are often many forms to fill out.
  • Keep copies of all your paperwork.  In the unlikely event that the brokerage misplaces your application, you can send in another one without having to fill out all the information again.

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Updated: 10/28/2011, FinancialTips4U
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