What are the Best Online Brokerages for Beginners?

If you're considering an online brokerage account for the first time and are relatively new to the investment process, who should you open an account with? We examined over fifteen online brokers and compared and evaluated their trading fees, service or standard fees, and account requirements among other factors, to see which would be the best suited to beginners' needs. Based on our analysis, we’ve compiled the best online brokerages for a distinct new investor profile: 

  • You plan to open an account with less than $1,000 of funds
  • You plan to trade stocks and ETFs, not options or mutual funds
  • You plan to place fewer than 10 trades per year
  • You want minimal costs, per trade commissions, and other maintenance fees

Note: Investing in specific company stocks may result in an undiversified portfolio and may expose you to significant risk. For a new investor with limited experience, investing in a low-cost index fund along with a goal-appropriate asset allocation strategy may give you a better risk-adjusted return than picking specific company stocks.

Top 5 Online Brokers for New Investors

With limited capital initially, new investors should choose online brokerages with no opening minimum requirements and low maintenance. Our priorities in recommending a list of the best brokerages for first-time investors focus on minimizing costs with some combination of no opening minimum requirement, low or no commission or fee per trade, and low or no service or standard fees, e.g. annual fees, inactivity fees. Different fees will eat into investable balances and erode returns.

Based on these criteria, we recommend the following online brokerages for this investor profile. They're presented in order from the lowest per trade fees and onwards, but the decision about which is the best fit for you depends on your own preferences.

OptionsHouse

Like its name implies, OptionsHouse is a great platform for traders focused on options. However, its low fee structure also makes it a great choice for cost-sensitive investors just starting out. There are no annual fees or inactivity fees. A neat feature of OptionsHouse is its FAQ and tutorial videos, which benefit new investors by helping to provide educational context. Since the OptionsHouse trading platform is tailored more towards seasoned investors focusing on options, using the trading platform could be slightly overwhelming for new investors.

  • Opening minimum: None
  • Fee per trade: $4.95
  • Inactivity or maintenance fees: None

TradeKing

TradeKing charges one of the lowest fee per trade online. Its trading platform is fairly simple and intuitive. TradeKing also hosts its own forum where investors exchange notes and stories, which could be attractive to the new investor. However, while TradeKing’s fee per trade is very low, TradeKing will assess an inactivity fee of $50 if an account has not made any trades in 12 months AND if the account value falls below $2,500. It's the highest out of the 15 online brokers we considered, but manageable. As long as you make at least one trade in 12 months, you will not be hit with the inactivity fee. You'll also have to add to your opening balance up to the $2,500 at some point during the year if you began with just $1,000 at TradeKing; otherwise, that $50 fee will reduce your returns.

  • Opening minimum: None
  • Fee per trade: $4.95
  • Inactivity or maintenance fees: $50 for no activity / balance below $2,500

SogoTrade

SogoTrade, a no-frills brokerage, offers the next lowest fee per trade at $5.00. With a zero opening minimum, it is an attractive choice for investors with limited capital. On top of this, SogoTrade does not charge annual fees or inactivity fees, which is great for novice consumers slowly dipping their toes into the investment universe. Unique to SogoTrade among the brokerages on this list, is that it also offers customer services in Chinese. This additional feature helps the company penetrate a portion of the population that may not have invested before because of a language barrier.

  • Opening minimum: None
  • Fee per trade: $5.00
  • Inactivity or maintenance fees: None

Merril Edge

At $6.95, Merril Edge has one of the cheapest fee per trade among the online brokerages. What makes Merril Edge stand out compared to its competitors on this list is its connection to Bank of America, one of the largest financial institutions based on customer deposits. If you are already a Bank of America customer, moving funds to and accessing your Merril Edge account becomes really convenient - there's no need to transfer or wire funds externally. It helps to cut down on a few extra steps and the wait, which is another one of the reasons why we recommend this for people just starting out on the investment process online.

  • Opening minimum: None
  • Fee per trade: $6.95
  • Inactivity or maintenance fees: None

Sharebuilder 

Sharebuilder is another good alternative for cost-conscious investors just starting out. Additionally, Sharebuilder also offers an “Automatic Investing” plan, where you could make dollar-based investments on a predetermined schedule – either on a weekly, biweekly or monthly basis. With the automatic investing plan, the fee per transaction is $3.95, much lower than Sharebuilder’s usual fee per trade of $6.95. Keep in mind, though, with the automatic investing plan, you will be giving up your ability to make trades whenever you think is appropriate and will instead be tied to the Sharebuilder’s investment schedule. You could still make trades outside of the Automatic Investingplan, but you will then be charged the $6.95 fee per trade.

  • Opening minimum: None
  • Fee per trade: $6.95
  • Inactivity or maintenance fees: None

Online Brokerages & Why Fees Matter

Online brokerages offer self-directed accounts, where you choose your investments independently. Like full-service brokerages, an online brokerage allows investors to trade financial products like stocks, ETFs (exchange-traded funds), options, bonds, mutual funds, futures, currency and other alternative investments. Every time you trade a financial product, you are charged a commission, which is a broker's fee for executing the trade. Aside from commissions, brokerages also charge service or standard fees, which may include annual fees and inactivity fees. That's why in arriving at our list of the best online brokerages for beginners, we were very sensitive to each company's fee structure.

Why do fees matter?

For example, you open an account and fund it with $500. You really want to be an owner of GoPro Inc. (NASDAQ: GPRO), whose stock is priced at $45. Brokerage A charges $4.95 per trade and Brokerage B charges $9.99 per trade. With $500 less trading fees, you are able to purchase 11 shares of GPRO at Brokerage A, and only 10 shares if you had decided to open an account with Brokerage B. On a percent return basis, your stock purchase at Brokerage A would need to appreciate by 0.99% to cover the cost of trading, while a stock purchase at Brokerage B would require more than double that at 2.17%.

More info: Top online brokerages with no commissions for ETFs

Online Brokers Considered

The set of online brokerage companies that we considered were: Charles Schwab, e*Trade, Fidelity, Firstrade, Merrill Edge, OptionsHouse, Scottrade, Sharebuilder from Capital One), SogoTrade, T. Rowe Price, TD Ameritrade, TIAA-CREF Self-Directed Brokerage, TradeKing, Tradestation, and WF WellsTrade. This list includes some of the major online brokers out there, but did not make our beginner-friendly list of companies because their costs and requirements weren't as competitively aligned with the needs of our investors' profile that we defined above.

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