Considering Which Broker to Use: The Top 5 Major Brokerage Houses
So you’ve been following the market, reading some Peter Lynch, Benjamin Graham, Warren Buffet… and you finally want to take the plunge and start investing. You’re going to need a broker.
Brokers are the people who “broker” the deal between you and the company whos stock you wish to purchase. Gone are the days of personal brokers calling you up and giving you “hot tips” on new stocks. This is the era of the internet, you don’t need some middleman fleecing you for fees.
Personal brokers are salesmen, they make their money by commissions on sales and brokerage fees, in other words, they make money when you buy new stocks, so they constantly want you to “update” your portfolio. Having a personal broker is sort of the opposite of buy-and-hold value investing. So we’re not even going to consider the so-called full-service brokerage firms, we’ll just stick to the online discount brokerage houses, the only ones that really matter to value investors.
A lot of these discount brokerages have research tools and various other online bells and whistles. The thing is, those research tools are out there for free on the internet in other places. Now more than ever you have endless amounts of information at your fingertips. The point is, all you need your broker to do is broker the deals you ask them to. You research a stock online, you follow it’s history and you then you decide how many shares you want. Your broker gets you those shares, that’s all.
What Are Your Goals?
You need to look at yourself before you even start evaluating brokerage houses. Find out what your needs are as an investor. You need to decide how much you’re willing to invest. That amount has a major impact on which brokerage firm you’ll want to pick, since some firms require you to have a certain minimum initial deposit, or give you a better deal past a certain amount.
Then you’ll want to consider how many trades you’ll be making in a given time frame. Will be just buying a few stocks for your portfolio and holding them until further notice? Or are you interested in mixing it up a little, trying to play the market? Your estimated number of trades will factor in greatly as well.
So here’s a breakdown of 5 of the major online discount brokerages, by the numbers.
Ameritrade
Minimum balance: $2,000 dollars
Stock trade: $9.99 dollars each
E*Trade
Minimum balance: $1,000 dollars
Stock trades: $12.99 each
Sharebuilder
Minimum balance: None (You can start with any amount)
Stock trades: $9.95 dollars for Real-time trades, $4 dollars for Automatic investing* trades
*Automative investing is one of Sharebuilders neat features. It allows you to buy shares on a schedule, weekly or bi-weekly or whatever. The catch is that the buy isn’t in real time, you pick the stock or stock you want, set the trade to happen, and it goes through on a certain day of the next week. It’s great for value investors, not so great if you want to buy at a specific price.
ScottTrade
Minimum balance: $500 dollars
Stock trades: $7 dollars
Zecco
Minimum balance: $2500 dollars
Stock trades: $0 dollars for the first 10 trades a month, $4.50 each for any over 10
Zecco is an interesting creature. They offer 10 totally free trades a month. Yeah, you read correctly, free trades, they cost nothing. How could they afford to do this? Well, they make money in a few ways. Firstly, they have a minimum initial balance of $2,500, all those cash balances add up, and Zecco keeps some of the interest from those cash balances. Also, they charge $4.50 a trade if you go over the 10 free ones. Website ads, margin trading fees, advanced tool fees; those are all income streams as well. So it’s not a scam, Zecco is the real deal. In fact, if you have 2,500 dollar to invest, they’re a really great deal.
Choose wisely
