We recognize that we all are living through a particularly volatile time as we deal with this global crisis, and financial markets have also seen unprecedented change, impacting all investors. Our mission has always been to help people make the most informed decisions about how, when and where to invest. Given recent market volatility, and the changes in the online brokerage industry, we are more committed than ever to providing our readers with unbiased and expert reviews of the top investing platforms for beginning investor.
In our list of the best brokers for beginners, we focused on the features that help new investors learn as they are starting their investing journey. 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.
Best Online Brokers for Beginners in September 2020:
- TD Ameritrade: Best Broker for Beginners
- TD Ameritrade: Best Broker for Investor Education
- E*TRADE: Best Broker for Ease of Trading Experience
- Merrill Edge: Best Broker for Customer Service
Best for Beginners and Best for Investor Education: TD Ameritrade
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.1 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.2 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.3 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 offers three computer-based and two mobile platforms that appeal to a range of investing styles and interests.4 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.
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.5 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.6
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.
What Is a Stock Broker?
A stock broker is a firm that executes buy and sell orders for stocks and other securities on behalf of retail and institutional clients. Different stock brokers offer varying levels of service and charge a range of commissions and fees based on those services. The most commonly referenced stock broker firms are discount brokers.7
Do You Need a Lot of Money to Use a Stock Broker?
Fortunately, little money is necessary to start a brokerage account. Many discount brokers are offering anywhere between $0 and $500 account minimums, making it easy for anyone to get started.
What You Need to Open a Brokerage Account
Make sure you have the following details handy when you're ready to start the process:
- Name
- Address
- Date of birth
- Social security number (or taxpayer identification number)
- Telephone number
- E-Mail Address
- Driver's license, passport information, or other government-issued identification
- Employment status and occupation
- Annual income
- Net Worth
Trading vs. Investing
Generally, when people talk about investors, they are referring to the practice of purchasing assets to be held for a long period of time. Investors hold their assets for the long term so that they may reach a retirement goal or so their money can grow more quickly than it would in a standard savings account accruing interest.
In contrast, trading involves buying and selling assets in a short period of time with the goal of making quick profits. Trading is typically seen as riskier than investing and should be avoided by the inexperienced and those new to the stock market.
Discount Brokerage vs. Full-Service Brokerage
There are different types of brokers that beginning investors can consider based on the level of service and cost you are willing to pay. A full-service, or traditional broker, can provide a deeper set of services and products than what a typical discount brokerage does.7 Full-service brokers can give their clients financial and retirement planning as well as tax and investment advice. These additional services and features usually come at a steeper price.
If you are looking for a cheaper, more hands-on approach, a discount broker is a better choice. Discount brokers offer low-commission rates on trades and usually have web-based platforms or apps for you to manage your investments. Discount brokers are cheaper, but require you to pay close attention and educate yourself. Luckily, most discount brokers provide educational resources to help you learn to trade and invest.
How to Pick a Stock Broker
To choose a stock broker you must ask yourself a series of questions. These include: Am I a beginner? How much can I afford to invest right now? Am I a trader or an investor? What kind of assets would I like to invest in?
There are quite a few things to consider when going through this process. To help out with this check out our guide to choosing the right stock broker.
Is My Money Safe in a Brokerage?
All brokerages operating within the U.S. are required to have $500,000 of SIPC protection, which includes a $250,000 limit for cash.8 This means that any holdings with a brokerage that exceed $500,000 could be lost in the event that a brokerage goes bankrupt or is liquidated. That said, retail investors, especially beginners, are unlikely to have accounts that exceed $500,000. Therefore, there's little cause for concern when it comes to the security of your money in a brokerage account.
Can I Withdraw Money From a Stock Broker?
Withdrawing your money from a brokerage is relatively straightforward. When you have money in a brokerage it is generally invested into certain assets. Sometimes there is cash left on the side that is in the account but not invested. This excess cash can always be withdrawn at any time similar to a bank account withdrawal. The other money that is invested can only be withdrawn by liquidating the positions held. This means selling the assets that you purchased like stocks, ETFs, and mutual funds. Once sold, you can withdraw that cash.
Types of Brokerage Accounts
There are a number of types of accounts available at brokerages:
- Cash accounts: A cash account is a brokerage account in which a customer is required to pay the full amount for securities purchased, and buying on margin is prohibited. The Federal Reserve's Regulation T governs cash accounts and the purchase of securities on margin.9 10 This regulation gives investors two business days to pay for securities.
- Margin Accounts: A margin account is a brokerage account in which the broker lends the customer cash to purchase stocks or other financial products. The loan in the account is collateralized by the securities purchased and cash, and comes with a periodic interest rate. Because the customer is investing with borrowed money, the customer is using leverage which will magnify profits and losses for the customer.
- Retirement Accounts: Brokerages offer all types of retirement accounts like Traditional IRAs, Roth IRAs, and 401(k)s.
Terms for Beginners to Know
Anyone who would like to get involved in the stock market should know some basic terminology:
- Stock: A stock (also known as "shares" or "equity") is a type of security that signifies proportionate ownership in the issuing corporation. This entitles the stockholder to that proportion of the corporation's assets and earnings.
- Price-to-Earnings Ratio – P/E Ratio: The price-to-earnings ratio (P/E ratio) is a ratio for valuing a company that measures its current share price relative to its per-share earnings (EPS). The price-to-earnings ratio is also sometimes known as the price multiple or the earnings multiple.
- Market Capitalization: Market capitalization, commonly referred to as "market cap," refers to the total dollar market value of a company's outstanding shares. Market cap is calculated by multiplying a company's shares outstanding by the current market price of one share.
- Dividend: A dividend is the distribution of reward from a portion of the company's earnings and is paid to a class of its shareholders.
- Exchange-Traded Fund (ETF): An exchange-traded fund (ETF) is a collection of securities—such as stocks—that typically tracks an underlying index.
- Bond: A bond is a fixed income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). A bond could be thought of as an I.O.U. between the lender and borrower that includes the details of the loan and its payments.
- Mutual Fund: A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities such as stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund's assets and attempt to produce capital gains or income for the fund's investors.
- Limit Order: A limit order is the use of a pre-specified price to buy or sell a security. For example, if a trader is looking to buy XYZ’s stock but has a limit of $14.50, they will only buy the stock at a price of $14.50 or lower. If the trader is looking to sell shares of XYZ’s stock with a $14.50 limit, the trader will not sell any shares until the price is $14.50 or higher.
- Market Order: A market order is a request by an investor – usually made through a broker – to buy or sell a security at the best available price in the current market. It is widely considered the fastest and most reliable way to enter or exit a trade and provides the most likely method of getting in or out of a trade quickly. For many large-cap liquid stocks, market orders fill nearly instantaneously.
If you're interested in learning more about the stock market you can check out our guide to investing.
Methodology
Investopedia is dedicated to providing investors with unbiased, comprehensive reviews and ratings of online brokers. Our reviews are the result of months of evaluating all aspects of an online broker’s platform, including the user experience, the quality of trade executions, the products available on its platforms, costs and fees, security, the mobile experience and customer service. We established a rating scale based on our criteria, collecting thousands of data points that we weighed into our star-scoring system.
In addition, every broker we surveyed was required to fill out an extensive survey about all aspects of its platform that we used in our testing. Many of the online brokers we evaluated provided us with in-person demonstrations of its platforms at our offices.
To determine the best broker for beginners, we focused on the features that help new investors learn as they are starting their investing journey. Brokers were selected based on top-notch educational resources, easy navigation, clear commission and pricing structures, and portfolio construction tools. We also looked for low minimum account balances and availability of demo accounts so new traders and investors can practice not only using the platform but also placing trades.
Our team of industry experts, led by Theresa W. Carey, conducted our reviews and developed this best-in-industry methodology for ranking online investing platforms for users at all levels. Click here to read our full methodology.