With the recent move to zero-commission trading, the online brokerage world is being intensely disrupted.
Charles Schwab, the brokerage behemoth who triggered this wave, has already seen a big jump in new accounts. October alone, the month after cutting fees to zero, saw 142,000 accounts added, a 31% increase over September, reaching a total 12.2 million accounts with a record $3.85 trillion in assets.
Many of its competitors have enjoyed a boost in business as well.
Even Square, the famous mobile payment firm, is getting into the fray, aiming to lower investing barriers. Its CashApp will allow users to buy and sell stocks for free, and even make fractional share purchases through fixed dollar amounts to get younger investors involved in the markets.
But the clear winner in all of this is the investor, who can now trade at lower costs than ever. Increasingly, investors are feeling compelled to take more control.
The thing is, online brokers are not all the same. Some are better suited for beginners, some for trading options or ETFs, and others are best for buying or trading international securities or small cap stocks.
Each offers a mix of deposit minimums, research data and tools, trading platforms, user interfaces and mobile capabilities.
Whether you’re just starting out opening your first retirement account, or you’re already a seasoned day trader, there’s a right online broker out there for you. It’s just a matter of figuring out what kind of investor you are and what needs you have.
So that’s exactly what we’re going to help you do here in:
Part II: Who Should Be Your Broker
In reviewing the whole array of online brokers, we’ve come up with five overall categories to help determine which suits you best.
For Americans, these groupings are for those who consider themselves to be or focus on one of the following: Beginners, Options Trading, International Stocks, Small Cap Stocks, and Retirement Accounts.
We’ve also chosen our five favorite Canadian online brokers out of 13 contenders. Canada’s economy is the world’s 10th largest with a strong financial system, robust resource exports and a relatively well-diversified economy.
Still, as result of its relative size and its shared border with the U.S., Canadians are quite comfortable investing in American financial markets. Young people and women are increasingly willing to invest online, with one quarter of Canadians purchasing online investments.
Lack of knowledge and confidence are often cited as the main reasons for not investing online. So online brokers are vying for clients by expanding their research, educational tools, seminars and webinars.
Canadian online brokers haven’t followed their American counterparts by going the zero-commission route. But some have been cutting their fees in an effort to gain market share and to attract new and younger clients. Unlike in the U.S., annual fees are common unless clients keep a minimum account balance. Not all offer mobile apps, and trading tools vary widely.
We’ve chosen our top 5 Canadian online brokers in the following categories: Low Fees, Research, User-Friendly, Trading Tools and Pro Traders.
First let’s go through the categories individually for American investors. We’ll give you our best picks in each, and tell you exactly why that’s the case.
TD Ameritrade (AMTD:NASDAQ) is a leader in the online brokerage business. In the 80s TD Ameritrade pioneered touch-tone phone trading, and in 1995 acquired K. Aufhauser & Co., considered to have completed the first online trade the previous year. That set the stage for a true innovator in the industry, always focused on making online trading as easy as possible for its clients. The company was early in offering online options trading and was first to offer trading via a mobile device.
Multiple acquisitions in the ensuing years helped keep TD Ameritrade at the very forefront. As one of the largest online brokers in the U.S., TD Ameritrade offers multiple platforms, from the simplest version to “thinkorswim”, which caters to dynamic traders. TD Ameritrade constantly strives to streamline its platforms and content to simplify every trading step. Two mobile apps are available, TD Ameritrade Mobile App resembles the online site, while TD Ameritrade Mobile Trader is the mobile version of thinkorswim, allowing for watchlists, charts and so on to be synced with a desktop.
The company has a deep offering of research and educational tools meant to get new investors to be more at ease with multiples asset classes. TD Ameritrade now offers free online stock, ETF and option trades (options do have a $0.65 contract fee), while account minimums are $0.
Sample Company View on TD Ameritrade:
As we mention in Part I, Robinhood was actually first to offer free trades on its mobile app since 2014. It’s free for U.S. listed stocks and OTC (over-the-counter stocks), ETFs, options and cryptocurrencies (with Robinhood Crypto) via the app or website. Account minimums are $0, while its website and mobile are very user-friendly. On the other hand, Robinhood’s extreme simplicity means a limited range of trading capabilities, so users may outgrow the service over time.
Sample Company View on Robinhood:
One big feature of Voleo (TRAD:TSX.V) is it’s a social platform, setting it apart from the rest. Using the app available through the Goolgle Play Store and Apple App Store, investors can form investment clubs with others they trust, between 3 and 100 members, to propose, debate and vote on trades. This approach helps remove barriers for new investors, making it attractive for beginners. The service allows users to trade U.S. stocks and ETFs, small cap stocks (not OTC “F stock”), but no international markets. Commissions are $12 per trade which is split between club members.
Vanguard’s platform is very basic as it’s not aimed at active traders. However, it can be a great way for novice investors to get their feet wet, focusing instead on ETFs to build a portfolio. To that end, Vanguard offers some 1,800 commission-free ETFs, along with good material aimed at long term investment planning and education. Account minimums are $3,000 for most mutual funds, stocks and some ETFs are $7 per trade, and options cost $7 per transaction plus $1 per contract.
Sample Company View on Vanguard:
Proper portfolio diversification means investors should aim to include foreign securities, which can zig when others zag. They can get some of that balance by trading in international stocks listed in the U.S. (ADRs: American Depositary Receipts) or ETFs with overseas content. But direct access to foreign markets is ideal.
Here’s where Interactive Brokers (IBKR:NASDAQ) again leads the pack. IBKR serves clients in 225 countries with multi-currency accounts also offer access to futures, forex, structured products and single stock futures, to name a few. What's more, clients have access to free research from almost a hundred providers. If you're looking for sophisticated access to the worldwide securities markets, look no further. Interactive Brokers attracts a base of very active traders. It's also noteworthy because its clients can trade on 125 exchanges around the world in real time, including the Canadian exchanges.
Sample Company View on Interactive Brokers:
Thanks to strong international capabilities, Fidelity’s customers can also access markets in 25 countries, as well as trade in over a dozen currencies. Domestic and foreign stocks can be held in the same account. Quotes are available in real time, and customer service brokers provide support at the International Trading Desk. However, foreign stocks don’t qualify for margin trading. Account minimums are $0; stocks, ETFs and options trade for free, but options have a $0.65 fee per contract.
Fidelity has placed a lot of effort recently to improve the robustness of its entire infrastructure. The company does a great job through its excellent customer service and simplified order entry system. And still there are big changes coming to make the whole trading process even more streamlined. Thanks to the way Fidelity routes orders, clients receive considerably better than average prices when then buy and sell. What we also like about Fidelity is, when investors become more comfortable, they can access the Active Trader Pro platform, which includes real-time data streams. That means not necessarily switching your account to access more advanced features as you become more seasoned.
Sample Company View on Fidelity:
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Small Cap stocks
Our first choice for small cap stocks is Schwab (SCHW:NYSE), since they’ve done away with commissions in this category, a rarity in the industry. And by offering the guidance of financial advisors, along with platforms, wide-ranging equities research and complete banking services, it’s difficult to find a better choice in this category. There is no account minimum; stocks, ETFs and options trade for free, while there is a $0.65 per option contract fee.
Sample Company View on Schwab:
TradeStation is our other favorite for small cap stocks. A recent feature called TSgo is a service that makes trading OTCBB small cap stocks free of commissions. Meanwhile, other offerings like mutual funds are limited. Account minimums are $500 (or $5,000 for retirement accounts), while stocks and ETFs cost $5 to trade, while options are $0.50/contract plus $5 per trade.
Merrill Edge gets top spot for retirement accounts. Account minimums are $0, accompanied by $2.95 stock trades, while options cost $2.95 per leg and $0.75 per contract. If you’re a member of the loyalty program at Bank of America you can benefit from free trading. Merrill’s retirement planning and life stage planning tools are top notch, allowing users to easily view their asset allocation. As well, their mobile apps provide access to great retirement planning material.
Sample Company View on Merrilledge:
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Fidelity is also a great choice to help investors save for retirement. Thanks to a wide range of services, from do-it-yourself to managed accounts, this online broker makes investing as simple a process as possible. Its retirement planning tools aim to attract younger investors, and Fidelity-Go, their robo-advisor, can help manage IRA accounts.
Sample Company View on Fidelity:
Our favorite choice for options traders is Interactive Brokers (IBKR:NASDAQ) . Interactive Brokers serves both active traders and institutions as well as retail investors. The company offers two levels of service: IBKR Pro and IBKR Lite. IBKR Lite clients can trade US exchange-listed stocks and ETFs commission-free and there are no account minimums of inactivity fees. With IBKR Pro, which also has no account minimums, on the fixed rate side, clients pay $0.005 per share, with a $0.35 minimum, to trade stocks, ETFs and warrants. Tiered pricing ranges from $0.0005 to $0.0035 depending on monthly volume with a minimum per order of $0.35. Clients also pay small exchange, clearing and regulatory fees. The company's tiered commission on Options trades range from $0.25 to $0.65 per contract depending on the trade size, with a $1.00 minimum per order plus small fees.
Interactive Brokers has multiple trading platforms. IBKR Pro clients can select between the Trader Workstation, the web-based Client Portal or IBKR Mobile and IBKR Lite clients can choose between Client Portal and the mobile app.
Sample Company View on Interactive Brokers:
E*TRADE (ETFC:NASDAQ) also does a great job for traders looking to deal in options. With no account minimum and options priced a $0.50 - $0.65 per contract according to volume, fees are very reasonable. The TradeLab feature helps see how a spread may act, while the LiveAction provides a real time view of possible trades. Stocks and ETFs trade with no commissions.
Sample Company View on E*Trade:
NOTE: A special mention goes out for those brokers who excel in research. If this is a priority for you, consider an account with TD Ameritrade or Fidelity, as they stand above the pack in this respect.
And now for Canadian investors…
But first…Some Americans may want to open an account with a Canadian online broker for easier access to Canadian stocks. Small cap stocks which trade on either the TSX Venture Exchange or the Canadian Securities Exchange can be especially attractive for their high-returns potential.
However, complex and very restrictive rules regulate what types of Canadian brokerage accounts Americans can have, and what activity is allowed. Most Canadian online brokers will simply not open an account for a U.S. resident.
Instead, if Americans wish to trade Canadian stocks on the Toronto Stock Exchange, the TSX Venture and the Canadian Securities Exchange, they have easy access to those markets from their U.S. accounts with Interactive Brokers, Fidelity and Schwab.
Questrade gets top spot overall thanks to its low fees. Account minimums are $1,000, but $5,000 will avoid a $24.95 quarterly inactivity fee. There is no annual account fee. Trading fees range from $4.95 to $9.95, while ETFs can be purchased at no cost. Clients have access to multiple U.S. and other markets, including stocks, options, mutual funds, bonds, forex and even precious metals. As well, Questrade offers a multitude of retirement and savings account options, including RRSP, TFSA, RESP, LIRA, RIF and LIF. Third-party research is strong with feeds from Morningstar and Market Intelligence.
Sample Company View on Questrade:
Qtrade Investor does most things well, and as a result scores highly. Its website is amongst the most user-friendly, allowing for a great customer experience. But its research is also top notch, offering in-depth independent analyst research and reports, as well as stock, mutual fund, and ETF screening tools. These are geared to help investors set goals and choose investments, then assess their overall strategy. Once invested, clients can monitor their holdings with real-time alerts and watchlists. Like its competitors, Qtrade offers retirement and all types of other accounts. Stocks and most ETFs cost $8.75 per trade, while options cost $8.75 plus $1.25 per contract. Investor Plus and young investors can qualify for better pricing.
TD Direct Investing is one of the largest online brokers around, and a division of TD bank. It’s not the cheapest option, but with its wide range of trading tools and advanced research, TD Direct Investing gets high marks. Market data is superb, as well as the ability to screen stocks and perform comparisons based on fundamental and other criteria. Also, TD offers great alerts and notifications. Customer support is also very good, but investors require a $15,000 account minimum to avoid the $100 annual account fee. Trades are $9.99 apiece. Overall, TD Direct Investing’s platform simplicity and mobile app make it a great choice for new investors. Webinars and interactive online classes help less-seasoned investors gain confidence.
Sample Company View on TD Direct Investing:
BMO InvestorLine is a division of Bank of Montreal, and offers the favored user experience for a number of reasons. While its online trading gets top marks, BMO’s mobile platform is average. Market analysis, transactions, investing and planning are all top tier and easy for clients to perform. Account opening is a breeze, and similarly to TD, planning tools, alerts and notifications make for a smooth experience. Third-party research and its intuitive platforms make for easy trading. Simplicity is the operative word, even with an array of research. Trades are $9.95 apiece, plus $1.25 per options contract. Account minimum is $0 and there are no account fees on a balance of $15,000 or more.
With a history dating back to 1977, Interactive Brokers (IBKR:NASDAQ) is great for pro traders, much for the same reasons it’s also our pick for options and international markets in the U.S. Beginners beware: their platform is aimed at active traders, but their mobile app gets kudos even from professionals. Market research and education are not their strengths. IBKR offers the lowest margin rates, along with a vast range of markets across multiple types of securities. Its Trader Workstation (TWS) gets the job done. Trading commissions are the lowest, with U.S. stock trades at $0.005 per share, with a minimum of $1 and a max of 0.5% of the total transaction. A $10 monthly fee is charged if there is no activity.
Sample Company View on Interactive Brokers:
So there you have them, our top picks in each category to help you decide who should be your broker.
The highly competitive landscape means online brokers are slashing fees while improving offerings and service to vie for your business.
Zero-commissions trading now makes online investing and trading more attractive than ever.
Be Sure to Check out Part Three of Our Online Broker Series
We've sifted through the overall research and tools offerings of our top ten online brokers, and top five Canadian brokers, then ranked them on this basis.
Broker Research Offerings
Editor's Note: After this article was published, Charles Schwab announced plans to acquire TD Ameritrade.[NLINSERT]
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