Once you’ve decided you’re ready to invest your money, it can be difficult to decide where to invest your money with the different brokerage in the market.

Profitable investing requires you use a brokerage service that aligns with your investing goals, educational needs and learning style.

Especially for new investors, selecting the best online stock broker that fits your needs can mean the difference between an exciting new income stream and frustrating disappointment.

While there’s no sure-fire way to guarantee investment returns, there is a way to set yourself up for success by selecting the online brokerage that best suits your needs.

In this article, we’ll break down everything you should look for in your ideal brokerage, from the obvious (like whether or not the platform allows you to trade the securities you’re interested in) to the not-so-obvious (like how easy it is to get support from an actual human when you need it) and the right questions to ask.

• What Questions Should you ask Before Choosing a Brokerage?
• What is the Best Stocks Broker for Beginners?
• Why do you Need an Online Brokerage?
• Is Your Money Safe With a Brokerage?
• What to Consider when Choosing an Online Broker
• Can you Withdraw Money from a Brokerage Account?

What Questions Should you ask Before Choosing a Brokerage?

Here are some key questions to ask when choosing the best broker for you.

1. How much cash do you need to start?

Different brokers have different account minimums depending on the types of services you want. Some allow a $0 minimum to open a retirement account such as a traditional individual retirement account or a Roth IRA; others can require anywhere from $500 to $10,000 to begin trading.

Read Also: Top 10 Ways to Start Investing Without Knowing Anything

And some brokers will waive the initial deposit if you set up automatic monthly deposits.

A common rule of thumb: Don’t invest cash you’ll need in the next five years so your investments have the opportunity to grow and ride out market contractions.

2. What are the costs?

People shopping for their first brokerage may simply look for providers with the lowest trading fees. That could be a good strategy if you plan to make a lot of trades. But trading commissions are only part of the picture.

Other costs may include annual fees, inactivity fees and additional charges for access to different trading platforms and research, so factor those into your evaluation as well.

3. What types of assets can you trade?

As an investor, what kind of assets do you want to buy? The ability to trade individual company stocks, exchange-traded funds and mutual funds is standard for most brokerage accounts, but the selection of funds can widely vary.

If you plan to trade currency, futures or options contracts, check that the broker offers those products. Also, note whether the associated fees and account minimums differ from what you’d pay to trade equities.

4. How much help does the brokerage offer?

How much hand-holding will you need? If you’re a first-time investor, probably a lot. Some brokerages offer online or in-person consultations with financial advisors, which may be attractive to newbies.

If you’re a DIY investor, the depth and usability of the brokerage’s research tools also will be a factor.

Select a brokerage firm whose educational tools and advice services match your investing comfort level.

5. Is the platform right for you?

Like test-driving a car, get behind the wheel of any brokerages you are considering and ask yourself: Do I like how this feels?

One of the best ways to do this is through a broker’s demonstration account or virtual trading, also known as “paper trading.” Many brokers also have videos showing how the platform works, which are worth watching before you commit.

This is a bigger factor than you might think: An April 2016 survey by NerdWallet and E-Trade found that site usability and tools were a top reason traders said they’d switch platforms, behind fees and commissions.

What is the Best Stocks Broker for Beginners?

Brokers were selected based on top-notch educational resources, easy navigation, clear commission and pricing structures, portfolio construction tools, and a high level of customer service.

Some brokers also offered low minimum account balances, and demo accounts to practice.

TD Ameritrade

• Account Minimum: $0
• Fees: Free stock, ETF, and per-leg options trading commissions in the U.S., as of October 3rd, 2019. $0.65 per options contract.

TD Ameritrade, one of the largest online brokers, has made a priority of finding new investors and making it easy for them to get started.

TD Ameritrade maintains an active social media presence so that a younger audience can gain familiarity with the company and the concept of investing. New users will find that financial education is a key component of TD Ameritrade’s offerings.

The broker’s online resources feature expanded learning pathways, ranging from beginner to advanced, to help you understand everything from basic investing concepts to extremely advanced derivatives strategies.

TD Ameritrade was the only broker in our review to earn the maximum number of points across the education category. 

TD Ameritrade is also very welcoming in terms of test driving the platform without making a commitment.

You can open an account and poke around without making a deposit, and take advantage of all the learning opportunities until you’re comfortable putting money down.

TD Ameritrade clearly wants to be part of the process through which new investors become more confident in their skills and take charge of their own financial future.

Pros

• The education offerings are well designed to guide new investors through basic investing concepts and on to more advanced strategies as they grow.
• TD Ameritrade offers in-person education at more than 280 offices as well as multiple training pathways available on its website and mobile apps.
• The TD Ameritrade Network offers nine hours of live programming in addition to on-demand content.
• The well-designed mobile apps are intended to give customers a simple one-page experience that will sit well with a younger, mobile-first crowd.

Cons

• Some investors may have to use multiple platforms to utilize preferred tools. This is most likely to affect experienced investors using a mixture of fundamental and technical analysis in their trading.
• TD Ameritrade offers many account types, so new investors may be unsure of which to choose when getting started. There should be more help available to make sure customers start out with the correct account type.
• Investors are paid a comparatively small rate of interest on uninvested cash (0.01-0.05%) unless they take action to move cash into money market funds.

E*TRADE

• Account Minimum: $0
• Fees: No commission for stock/ETF trades. Options are $0.50-$0.65 per contract, depending on trading volume.

E*TRADE offers three computer-based and two mobile platforms that appeal to a range of investing styles and interests.

The standard E*TRADE website and app have been redesigned for investors who are just getting started. Both the website and app have two-level menus with easy access to numerous screening tools, portfolio analysis, and education offerings.

There is also a demo account in the form of a paper trading platform modeled after the Power E*TRADE platform for traders to practice on.

The more advanced E*TRADE platforms are also elegantly designed and guide you along the way as you graduate to more complex asset classes.

Pros

• E*TRADE’s mobile apps are extremely well laid-out and easy to use and are among the most comprehensive and extensive apps tested. There are two mobile apps available: regular E*TRADE and E*TRADE Pro. The latter is focused on derivatives – options and futures.
• E*TRADE paper trading capabilities are used extensively to test strategies. The paper trading site uses delayed data so you won’t think you’re placing real trades.
• For those with a chunk of change that they want to invest quickly, E*TRADE’s Prebuilt Portfolios offer a fast track to the markets. You can choose from three different risk levels (conservative, moderate, aggressive) made up of ETFs ($2,500 minimum) or mutual funds ($500 minimum). There are no fees beyond fund management costs.

Cons

• E*TRADE is hanging on to its tiered commission schedule for options trades, charging $0.65 per contract for less frequent traders and $0.50 for those who place more than 30 options trades per quarter.
• Investors who would like direct access to international markets or to trade foreign currencies should look elsewhere.
• Though you can see all of your E*TRADE accounts when you log in, you cannot consolidate your externally-held finances to form a complete picture of your net worth on E*TRADE. 

Merrill Edge

• Account Minimums: $0
• Fees: $0 per stock trade. Options trades $0 per leg plus $0.65 per contract

In terms of customer service, Merrill Edge is hard to beat. Not only are there great resources built into Merrill Edge’s technology for newcomers to investing and for those exploring various life stages, but you can sit down face-to-face with an advisor in almost any Bank of America branch nationwide.

That said, these consultants are primarily focused on life stage planning rather than trading advice.

Besides its extensive advisor network, Merrill Edge’s two computer-based trading platforms and well-designed native mobile apps have a lot of built-in context-sensitive help.

The Story features are especially helpful for understanding what is going on in your portfolio, or what is affecting the performance of a particular stock or fund. 

In terms of technical customer support, Merrill Edge offers online chat in addition to a phone line. The phone line offers technical support or trading assistance 24/7 and is answered relatively quickly, though you start with an automated menu before being routed to a human.

Pros

• Merrill Edge’s portfolio analysis tools let clients take a deep dive into how their assets are working for them. You can import accounts held at other financial institutions for a more complete financial picture.
• Merrill Edge offers top-notch proprietary and third-party research capabilities geared for fundamental investors.
• Clients with more than $100,000 in qualifying assets combined with Bank of America and Merrill Edge qualify for additional benefits that can save or make you money.

Cons

• Merrill Edge’s per-contract options fees and margin interest rates are on the high side.
• Options spreads traded online are limited to two legs. You can trade more complex spreads by phoning the order in to a live broker.
• You cannot trade futures, futures options, or cryptocurrencies with Merrill Edge. Some investors may outgrow the firm’s offerings as they develop an interest in more complex derivative trading.

Why do you Need an Online Brokerage?

There are many benefits to online brokers and online trading in general. When someone uses an online brokerage firm, they are not subject to the biases of traditional stock brokers.

A typical online firm imposes no implicit strategy for investors. This means the investor can fully customize their trading approach, but they are fully responsible for their own success or failure. The following offers insight into some of the benefits of online trading.

• The investor has more control over their trade approach. With the online trading platform, you can take full control over your trades and meticulously maneuver the trading battlefield.
• There is also a much higher level of convenience. Things can change quickly in the stock market, and having fast access is crucial for success. You purchase and sell stock from the convenience of your own home or even on the go. No longer do investors have to schedule a meeting with their broker to make things happen.
• Online brokers offer a range of tools that give you the information you need in seconds. Having the right information at your fingertips is essential for making the right stock trades.
• One of the biggest benefits of online brokers is cost. Because there are no brick and mortar locations, the costs are immense for investors.
• You have access to buy any stock that is traded on the stock market which opens a vast landscape for you to trade in.
• Many online stock brokers also offer access to international stock which will allow you to increase your options while remaining in full control of the decisions you make.
• Online brokers also offer a range of financial tools that can help you protect your bottom line. From budgeting tools to mortgage calculators, there are plenty of options available from online firms.

Most people who invest in the stock market do so because they want great financial returns. To be able to reach your financial goals, you must be able to identify the best and most promising companies in the market.

Sure, you could give your money to a traditional broker and have them invest for you, but this puts you completely out of control and most people do not like that.

If you truly want to invest in stock without limits, an online brokerage firm is your answer. There is no other method for you to retain complete control and have access to your account at any time and even on your cell phone.

Is Your Money Safe With a Brokerage?

When Lehman Brothers went bankrupt in September 2008, most investors faced a question they had never considered: Is my money safe with my broker? What happened to Lehman brokerage accounts, and what makes one broker like Fidelity safer than another?

When stock markets began, brokers physically traded share certificates of a company’s stock and had armed guards moving certificates between brokers and their vaults all day.

In the 1960s there was a back-office crisis as trading volume went from 5 million shares daily to 15 million shares. The paperwork burden was overwhelming and brokers and stock exchanges came together to form the Depository Trust and Clearing Corporation (DTC).

Fast forward to our highly automated world—there are virtually no share certificates, but only records of how many shares are owned and by whom.

The DTC is the heart of the system, and tracks the shares of all securities that all brokers have. After trading is done each day, the brokers settle between one another through the DTC.

Your IBM stock held in your Schwab brokerage account is held in Schwab’s name, or “street name” at the DTC. If you sell 100 shares of IBM to someone at Merrill Lynch, that night, the DTC will transfer shares from Merrill to Schwab and cash from Schwab to Merrill.

Schwab keeps track of which clients own how many shares. DTC is like a huge file back-up system for everyone’s stocks, bonds, and cash in brokerage accounts.

Anyone can pass a test and become a broker. But a “clearing broker” is part of the elite group plugged directly into the DTC system. There are hundreds of clearing brokers, and thousands of “introducing” brokers. All introducing brokers need to “clear” through a clearing broker.

Clearing brokers hold money and securities and need a multi-million-dollar IT infrastructure to process orders and keep accounts and the capital to deliver securities or pay for them.

“The bar is high,” Hogan says. “Clearing brokers must demonstrate to regulators that they have the capability to be part of this highly regulated system. They must reconcile cash and securities on a nearly daily basis with the DTC and all other firms and are audited every week.”

The Securities Investor Protection Corporation (SIPC) restores cash and securities to investors with assets in the hands of bankrupt and otherwise financially troubled brokerage firms.

SIPC provides up to $500,000 of protection for brokerage accounts and estimates that no fewer than 99 per cent of persons who are eligible have been made whole in the failed brokerage firm cases that it has handled.

Brokers go broke because of bad management or fraud. Lehman went bankrupt because of bad management. SIPC and the DTC quickly restored investor accounts at another broker.

As long as the records of the brokerage firm are accurate, and there was no fraud involved, you get your securities and cash back or moved to another broker within a month or two.

When fraud is involved, it is generally with introducing brokers who are able to cash your checks, and create a set of fake books. It is nearly impossible for clearing brokers to commit fraud.

Hogan says, “The main way the system breaks down is when you deal with an introducing broker, and you’re told to deposit money with their firm.

They steal it and circumvent the system and create statements with a colour printer. You’re disconnected from reality and don’t have a cross-check.”

Hogan offers two pieces of advice if you don’t use a clearing broker. When introducing brokers, only make out your check to its clearing broker, and get access to the clearing broker’s website so you can see your account.

While introducing brokers have their own branded websites and statements, you should have online access to the clearing broker. Check your balances frequently. In addition, make sure regulators have never sanctioned your broker.

As long as you have your securities and cash with a clearing broker that has been around for at least 10 years, is run by competent management with a strong financial statement and an unblemished regulatory record, your money is safe.

What to Consider when Choosing an Online Broker

Minimum Account Balance

Most online brokers have a $1,000 or more minimum account balance requirement. If you’d like to start with less, you need to scout around for brokers which mandate very little or no account minimum.

The more money you have at your disposal, the more diversification you can hope to achieve.

Investing Goals

Investment objectives of an average investor may range from safety to income growth to retirement savings to tax minimization. You need to decide on an online broker that suits your investing goals.

Trading Frequency

If you don’t plan to trade frequently, you should choose a broker who does not charge inactivity fees.

Guidance Needed

If you are a beginner, you might trade infrequently but need good educational resources to walk you through the maze of investing. A full-service broker may come in handy in such an instance. However, seasoned traders who are active investors could do well with a discount broker.

Execution Speed

Given the volatility and rapidity associated with stock moves, a platform that allows fast execution of trades is essential for making profits. It pays well to check out how fast a particular broker’s website launches, even during peak hours.

Commissions and Fees 

A careful analysis of commissions and other fees associated with brokers is very essential for cutting down on your trading costs. Often, brokers charge a low commission and advertise themselves to be the cheapest option available but load up all the charges onto other fees.

Therefore, a careful analysis of the commissions as well as the other fees is a must.

Customer Service

Discount brokers, in the name of cutting overheads, may not offer the best customer service. Look out for those online brokers that offer customer service around the clock and not just during business hours. Analyze the various forms of support available, such as live chat, telephone support, email, etc.  

Can you Withdraw Money from a Brokerage Account?

If you want to invest in stocks that will grow over time to help you reach your financial goals, then you really need to have a brokerage account.

A good brokerage account will provide many of the essential services you need in order to invest well, including not only just the ability to buy and sell stocks but also tools like research to help you evaluate potential investments.

No matter what you’re investing for — whether it’s to save for a new car or home or a truly long-term goal like retirement — the time eventually comes when you need to withdraw your money from your brokerage account.

But unlike with a bank account, taking money out of a brokerage account can sometimes involve some extra steps.

As long as you’re aware of the requirements that your particular broker imposes on the type of account you have, then you should be able to get access to your money when you need it.

Why withdrawing money from a brokerage account can be complicated

Taking money out of a bank account is easy. Your bank holds your money on your behalf, and you always have a fixed balance available when you need it. When you make a withdrawal, your bank just reduces your balance by the amount of cash you take. It couldn’t be simpler.

Brokerage accounts are different because typically, most of your account will consist of stocks and other investments. The only time that taking money out of a brokerage account is as simple as it is with a bank account is if you keep a significant amount of uninvested cash in a regular brokerage account.

In that case, most brokers give you the option of having a physical check sent to you, having money sent to a bank account via electronic funds transfer, or arranging for a wire transfer.

Most brokers charge fees for wire transfers, which are faster than standard electronic funds transfers. Apart from that, though, you shouldn’t need to pay a fee to access your money if you have a good broker.

Withdrawing money when you need to sell stocks to come up with the cash

One common reason why you might not be able to withdraw as much money as you want from your brokerage account is that you have to sell the stocks or other investments that you own in order to come up with the right amount of cash. In that case, you’ll need to follow a three-step process:

1. Choose the stocks you want to sell and enter the appropriate trades with your broker.
2. Wait until the trades settle, which typically takes two business days.
3. Request the cash withdrawal once the proceeds of the sale hit your account.

The hardest thing for many investors to understand about this process is the second step. When you buy or sell a stock with a broker, the trade often seems to happen instantaneously, and you can typically see the new positions reflected immediately when you check your brokerage account online.

But behind the scenes, your broker is working with other financial institutions to ensure that the following internal steps happen on a set schedule. Current securities rules give brokers two business days to finish the settlement process, so that’s when your money will be available for withdrawal.

One thing to note is that if you have a margin account, then your broker might let you take cash out before your trades settle. However, you might get charged margin interest for the period of time between when you make the withdrawal request and when the settled funds come into your brokerage account.

Always check with your broker before doing an automated withdrawal to ensure that you won’t get hit with interest charges or other fees by jumping the gun.

Withdrawing money from brokerage accounts for retirement

The discussion above assumed that you were looking to take withdrawals from a regular brokerage account. If the brokerage account that you’re thinking about withdrawing from is actually a retirement account like an IRA, then there’s a whole different set of things to keep in mind.

Withdrawals from retirement accounts have tax implications that withdrawals from regular brokerage accounts don’t. In particular, if you have a traditional IRA or 401(k) account and you take money out of it, then you’ll have to pay income tax on the full amount of your withdrawal.

To calculate the tax due, the IRS adds your withdrawal amount to your taxable income. You’ll then run it through the tax tables when you prepare your tax return and pay the resulting tax, which will depend on your particular income level and tax bracket.

If you’re at least 59 1/2 years old, then that’s usually the end of the discussion. But those who are younger than 59 1/2 often have to pay an additional amount in early withdrawal penalties.

The penalty is 10% of the amount withdrawn, and it can be a huge hit if you’re not careful about it. Fortunately, there are some exceptions to the penalty rules for withdrawals if you use the money for certain permitted purposes, such as buying a first home or paying for eligible college expenses.

Various brokerage companies handle this situation differently. Some require you to have potential tax withheld from the amount you withdraw from your retirement brokerage account, which in turn can force you to make a larger withdrawal in order to end up with the amount of cash you want.

Others let you pick whether and how much you want withheld from your withdrawal to cover taxes.

If you don’t have enough money withheld to cover the tax, then it’ll be up to you to make up the difference when you file your return — along with any interest or penalties that can apply to under-withholding situations.

Also, keep in mind that once you take money out of a retirement account, you can’t necessarily put it back in unless you qualify to make future retirement contributions.

There’s a limited ability to treat a short-term withdrawal as a qualified rollover if you replace the money within 60 days, but you can generally do that only once each year.

Think about the consequences

Taking withdrawals from a brokerage account isn’t quite as simple as taking money out of your bank account. In most situations, the need to go through the exercise of selling off a stock or other investment to generate the cash you need can take additional time and effort.

Read Also: Investing for Retirement: The Complete Guide

However, that’s the price you have to pay in order to benefit from the long-term wealth-producing power that stocks have.

By knowing the exact process that your broker uses for the specific brokerage account you have there, you’ll be better prepared to handle any curveballs that can arise and still get the cash you need when you need it.

Using the wrong broker could cost you serious money

Over the long term, there’s been no better way to grow your wealth than investing in the stock market. But using the wrong broker could make a big dent in your investing returns.

Conclusion

Choosing an online brokerage can help you gain experience and improve your investing strategy. Having access to a range of tools and all the companies who are trading on the market is essential.

An online trading platform allows you to have access any time you want it. You do not have to wait to schedule a meeting or make a phone call to a traditional broker.

Online brokers put you in control of your financial destiny, and they offer all the tools that make online trading easier and more rewarding.