Discover the best online brokers for low fees, margin rates, stock market research resources and more.
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The competition between online brokers is intensifying and you as a consumer will benefit from this – if you choose the right brokerage company. Commissions have gone down, but it is not enough to evaluate the best stockbroker than to find the lowest commissions.
In fact, choosing the right online broker may depend on the type of investor you are and how you trade.
Besides commissions, there are other factors such as account minimums and trading fees to consider. To help you weigh all these factors, MoneyRates.com has grouped seven metrics into four broad categories:
- Profitability for small investors
- Margin interest rate
- Regulatory Disclosure Incidents
- Research Resources
MoneyRates averaged the rankings of 19 online brokerages across all of these categories to choose the best online brokers overall, then produced separate rankings for each of the above categories. These separate rankings will highlight the top online brokers that are strongest in specific areas to guide you in choosing a broker that might better suit your particular needs.
Best Online Brokers Overall
Winner: Motive Investing
Motif Investing took the top spot overall, with particularly high marks for its clean disclosure record and profitability for retail investors. Motif is a relatively new company that offers typical trading and margin services, but with a particular focus on helping investors assemble investment portfolios based on broad investment themes. For example, if you strongly believed that the price of oil was going to rise, Motif has tools that could help you build a portfolio of investments deemed likely to benefit from this trend.
Finalists: Optionshouse and Capital One Investing
A close follow to Motif Investing, Optionshouse scored above average in all four categories and ranked particularly highly as a good choice for small investors.
Rounding out the first three is Capital One Investing. Capital One took the top spot in this study last year and remained near the top due to its profitability for small investors and relatively clean regulatory history.
These were the comprehensive leaders, but to find out which companies might best match your priorities, the following sections focus on the leaders in each of the four specific categories.
Best Online Brokers for Small Investors
There is a price war between online brokers, with several recently lowering their commission rates. Over the past year, the average commission of the brokers in this study has decreased by nearly 20 percentfrom $7.52 per transaction to $6.05.
In the past, commissions were usually charged per share, so they automatically adjusted to the size of the trade. Now they are more often charged on a flat rate basis per transaction. As a result, they account for a larger portion of small trades, which makes buying low commission rates especially important for small investors.
In addition to commission rates, MoneyRates.com looked at minimum account size requirements and maintenance/inactivity fees to determine which brokers are the most profitable options for small investors.
Winners: Firstrade, Motif Investing and Optionshouse
The result was a three-way tie between Firstrade, Motif Investing and Optionshouse. All three offer $4.95 commissions for common stock trades, and all have no minimum account requirements or maintenance/inactivity fees.
Best Online Brokers for Margin Investors
Investing on margin means investing with borrowed money. This approach is not intended for inexperienced or risk-averse investors, as it greatly increases the risk/return characteristics of a portfolio.
One factor that affects the risk and reward of a margin portfolio is the interest rate charged for borrowed money. This rate becomes an obstacle that your investments must overcome to be profitable. If you don’t earn a return greater than the interest you pay, you will lose money overall. So, for investors who plan to make heavy use of margin, finding the lowest margin rate is an important factor in choosing a broker.
Winner: Interactive Brokers
Interactive Brokers is an online company that clearly wants to attract margin-based businesses, as it stands out from the crowd by charging a margin rate of just 2.16%. That’s well below the average rate of 7.52%, and significantly lower than its nearest competitors.
Finalists: Just2Trade and Lightspeed
Just2Trade and Lightspeed were tied at 6.50% for markup.
Note that the rates charged often depend on the amount of money on margin. This study used the assumption of a margin balance of $25,000 for its rate comparisons. When comparing rates for your own purposes, you should focus on the rates applicable to the margin balance you are likely to maintain.
Best Online Brokers With Cleanest Disclosure Records
Investors should consider regulatory events and arbitrage decisions when choosing an online broker.
Arbitration is a particularly hot issue with consumer advocacy groups these days. Brokerage agreements typically require clients to waive their normal legal rights in favor of dispute resolution by an arbitrator. Many people think that this system puts the heat on consumers, and if nothing else, if a company has a history of frequent arbitration cases, that’s a sign that it often has disputes with its customers.
Winner: Motive Investing
In addition to being at the top of the survey, Motif Investing was at the top of this category. According to the Financial Industry Regulatory Authority, an independent, non-governmental regulator of US securities firms, Motif has been registered since June 2010 and has not experienced any regulatory events or arbitration decisions since that date.
Finalists: Just2Trade and T. Rowe Price
Besides Motif Investing, Just2Trade and T. Rowe Price also earned in this category, each having negligible frequency of disclosure incidents.
Best Online Brokers for Research Resources
Unlike the other categories in this study, the rating of research resources is somewhat subjective. To consider multiple viewpoints, MoneyRates.com looked at reviews of search capabilities from three different sources: Kiplingers, Top Ten Reviews, and TheStreet.com. MoneyRates created a standardized score based on these reviews and averaged the scores of online brokers that were reviewed by at least two of these three sources.
While a number of relatively new entrants have made their mark in the online brokerage space through low commissions and technical capabilities, research resources can take some time to develop, it does not So it’s no surprise that this category is led by three companies that have each been around for well over 30 years or more.
Winner: Merrill Edge
Merrill Edge, the online brokerage arm of Merrill Lynch, received the highest average rating for its research resources. The broker offers markets and product centers for stocks, options and more.
Finalists: Charles Schwab and Scottrade
The best broker for research resources is followed by Charles Schwab & Company and Scottrade. Charles Schwab offers research tools such as access to the latest market news from Reuters and other major media and its proprietary performance rating method called Schwab Equity Ratings. Scottrade also offers the latest stock market news and breaks down performance by sector and industry on its Market Overview page.
Again, from cost to range of services, competition is intensifying among online brokers. It’s good for consumers, but only if you compare before choosing. The rankings above should give you some clues on where to look, but since brokerage firms frequently adjust their offers in an effort to compete, you should check the latest information before making a decision.