Monday, April 22, 2013

4 Things to Consider When Choosing Your Online Brokerage Firm


Today, Business Insider posted an article by Mandi Woodruff titled "Online Brokerage Firms Aren't Right For Everyone."  Though I agree with the general ideas mentioned in the article, I disagree with the notion that individuals shouldn't choose an online brokerage firm.

Mandi mentions the following reasons for why an individual investor should be wary:
  1. the number of available online brokerage firms and their offerings can be overwhelming for individual investors
  2. trading fees can eat away your profits with some accounts charging anywhere from $5 to $200 per trade
  3. some online brokerages charge inactivity fees
  4. some online brokerages charge hidden fees for transactions such as transferring your account to another firm
The article quotes Susan Lyons, a senior strategy analyst for NerdWallet Investing as saying "While over 17 million investors have accounts at the three largest online brokerages—Schwab, eTrade, and TD Ameritrade—their financial filings reveal their average customer executes less than two trades per month, for the majority of users, this means they could be saving money on unnecessary fees—to the tune of over $1.8 billion total per year—by investing elsewhere."

I couldn't agree more.

Discount online brokerage firms are a great way for the average (passive) individual investor to be active in the market without fees eating away at their profits.

I recommend that an individual investor consider the following 4 things before choosing a discount brokerage firm:
  1. Does the firm offer a robust mobile trading platform?
  2. Does the firm provide educational resources (how-to articles, company financial reports, streaming news, etc.)?
  3. What are your support options?  Will there be someone to help when you need it?
  4. And last but not least, how long has the firm been in business?
Finding a company that has a positive response to these questions will help you avoid headaches down the road.  I began investing with Scottrade ($7 per stock trade), then moved to SogoTrade ($3 per stock trade), and am currently with a platform I truly love - OptionsHouse ($3.95 per stock trade).  

As Susan rightly states, the point of picking an online discount brokerage firm is "to help you save money - not waste more of it with unnecessary fees."

Note: I chose OptionsHouse because they offer an innovative, customizable, and award winning platform that can compete with the larger firms but yet they have kept their rates low so that the average investor can easily afford it.  If you want to see what they offer, click this referral link to get 100 commission free trades when you open and fund an account with $5,000.

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