- Zenith Newsletter
- Pages
- The best brokerage account for me
The best brokerage account for me
By Roshan Pourghasemi
In this article we’ll cover…
Qualities to look for in a brokerage
Available options, pros & cons
Robo-advisors vs self-service brokerage
Fees (including selling order flow for brokerages that charge 0 commission)
Pick a name-brand brokerage and walk through account setup and placing a trade
You can learn everything about securities and investments that the world has to offer, but, if you don’t have someone to make the investments for you, then that knowledge will never amount to anything. That’s where your broker comes in. They give you a platform to allocate assets and track your investments. Since your broker is your gate into the world of investing, it’s important to find the broker that best fits your needs.
What to Look for in a Brokerage
Nowadays, there are a plethora of brokerage options to choose from. This can be overwhelming when you’re looking for a firm to trust with your money, but isn’t necessarily a bad thing. More options means more competition, making costs come down and quality of services go up. These are key factors to consider when choosing a brokerage:
Commissions - How much is the broker charging you for executing trades? Commissions are dependent on the type of trade, with stocks and ETFs usually incurring no fee at all. Before you pick a brokerage, you should look at their commissions on all the asset classes you are interested in.
Reliability - Look for brokerages who have shown reliability in the past. Some have been on the scene for decades, while others are relatively new. This doesn’t necessarily mean they are untrustworthy, but they might not have the resources on hand to handle major volume, as seen with the GameStop/AMC fiasco. Large institutions have a large amount of cash on hand, making it less likely they do not have the liquidity to execute one of your trades. The bottom line is to find a brokerage that is reliable.
Account Minimums - There are lots of strong brokerage options that don’t require a minimum, but some can require a minimum of $500 or more.
Account Fees - Account fees are pretty hard to avoid entirely. Brokerages can charge them for moving investments, taking out cash, and closing your account, among other things. If you’re changing brokerages, sometimes the new brokerage will offer to reimburse your closing fees up to a certain point. Lots of fees can be avoided by picking a brokerage without them in the first place, making it an important factor to consider when choosing a brokerage.
Fractional Shares - Fractional shares allow you to buy a piece of a share rather than a whole share at once. This is great if you don’t have a lot of money to invest, or you don't want to commit a large sum of cash to any one trade.
Pricing - As great as no commission trading is, the brokers still have to make money somehow. That’s where payment for order flow comes in. When you place a trade with a brokerage, they may execute that trade with a market maker (a large institution or bank) who connects them to the seller of the security.
Market makers make their money by buying a security and selling it to the brokerage for a couple cents more, which you will have to pay. It might not sound like much, but market makers go through millions of trades, and the pennies add up. The market makers want brokerages to work with them as much as possible, and they often pay for just that. If the brokerage accepts, they’re said to accept payment for order flow, eliminating the competition between market makers for your trades. You should decide for yourself whether payment for order flow bothers you, as it helps keep commissions low but also has a history of controversy.
Tools, education, and promotions - Brokerages often offer free educational resources to their clients. Whether it is basic or advanced trading like options, researching how a brokerage supports its clients is important when choosing yours. Even more, brokerages will often have promotions to attract new clients, which you’ll definitely want to take advantage of.
Robo-Advisor vs. Self-Directed
Another important factor to consider is whether you want to make all your own decisions or use what is called a robo-advisor. Contrary to its name, a robo-advisor is not an actual robot. When you sign up for a robo-advisor, it’s actually a person behind the screen who is controlling your trades, essentially making the investor’s (you) trades on autopilot. Your investments are in an actively managed fund, with returns in the 5-10% range. Robo-advisors do, however, take the autonomy out of investing, and it is cheaper to invest on your own (no advising fees). When deciding on a brokerage, see if they have a robo-advisor option if you’re a beginner. If you feel more market savvy, self-directed investing may be for you.
Pros and Cons of Popular Options
Account Minimum: $0
Commissions: $0 for stock/ETF trades, $0 plus $0.65/contract for options trade
Account Minimum: $0
Commissions: Free stock, ETF, and per-leg options trading commissions. $0.65 per options contract.
Account Minimum: $0
Commissions: Maximum $0.005 per share for Pro platform or 1% of trade value, $0 for IBKR Lite
Other popular brokerages are E-trade, Merrill Edge, Robinhood, WeBull, and Vanguard.
Step-by-Step Account Opening
For this example, I’ll be using Fidelity.
Go to this website. For other brokerages, it’s as simple as Googling “Open x account,” where x is the name of the brokerage.
Click “Open a Brokerage Account”.
Select whether it is an individual or joint account. I’ll be selecting “Individual”.
Enter some personal information to create an account.
Often, there is a promotional code section. Look on the Internet to try and find one. For example, code: FIDELITY100 gives $100 after a $50 deposit on your account.
Review and confirm.
Open the account.
Setup login.
Link your account funding source. I chose to link my bank account.
Complete your bank information.
Transfer the money you want in your brokerage account.
Find the option for trading/investing.
Fill out the information for your desired trade.
Preview and execute trade.