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Your Take: How Do You Evaluate Brokers?

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Charles SchwabCharles Schwab announced today that they would be charging a flat $8.95 per online equity trade regardless of the customer’s account size or the number of shares traded, down from $12.95. Schwab has been marketing itself as the broker of the average Joe, with their “Talk to Chuck” marketing, and moving to $8.95 a trade is certainly going in the right direction.

I’ve always thought of Schwab as a full-service broker along the lines of a TD Ameritrade, who charges $9.95 a stock trade, and less of a discount broker, like TradeKing ($4.95) or E*Trade ($12.99). As the lines between services that discount and “full-service” offer gets blurred, the only differences will come down to the commissions. Right?

Right now I use both TradeKing and E*Trade, but am transitioning my holdings from E*Trade to TradeKing. E*Trade was my broker of choice because you could instantly transfer your funds between E*Trade Broker and E*Trade Bank, which had a high yield savings account. With their high yield savings account yielding only 0.50% APY, that competitive advantage has vanished.

Now, my decision comes down to the price of a stock trade. I’m not an active trader but if TradeKing charges me $4.95 a trade and E*Trade charges me $12.99 a trade, that’s $8.04 per trade of savings. The 0.50% APY savings account at E*Trade won’t make up for the difference as you only earn $8.04 of interest (after taxes, assuming 25% tax bracket) on $2,144 of savings. When higher yields await elsewhere, there’s little reason to put savings in E*Trade and “investment” dollars won’t stay in a 0.50% account for very long.

That made me wonder, what stock broker do you use and why?

(Photo: thetruthabout)

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34 Responses to “Your Take: How Do You Evaluate Brokers?”

  1. BrianC says:

    I currently use Optionsxpress. For an occasional trade, Tradeking is fine, but when I am more actively trading I find customer service to be almost as important as commissions. At OX, I have never had a problem getting a knowledgeable CSR on the phone immediately. An e-mail response, online chat, or outsourced call center will not resolve problems as quickly or efficiently.

  2. cubiclegeoff says:

    I have a TD Ameritrade (although I thought their trades were $9.95), but it’s been empty for a while. I use Sharebuilder just because they reinvest dividends. Once I start getting a larger portfolio, my plan at the moment is to use Zecco since I plan on having more than enough in the account to have free trades (at least enough free trades for my purposes) and so my portfolio (which will be based off of some lazy portfolio or similar) can be balanced when I want and not have to pay for those trades.

  3. Mark says:

    Sharebuilder is what I use, I use their $12/month plan that lets me make 6 trades in their auto investing plan. I am in it for the long haul so a few hundred bucks a month to trade with for $12 makes sense. Plus the dividends get re-invested and if I want to make a real-time trade its still only $9.95. I can then move money into or out of my ING account quickly since they are owned by the same company.

  4. Blue says:

    TD Ameritrade is indeed $9.95 per trade, and with some simple account settings, they will reinvest dividends as well. What I’m most happy about with them is the amount of education they provide to all customers. Not long ago I attended a two-evening seminar hosted by them that has proven financially rewarding to me. Having no previous investing background, services like that are worth a couple more dollars per trade.

  5. Yana says:

    I use Charles Schwab. The customer service agents are excellent. I am not a phone person, but whenever I’ve needed to speak to someone at Schwab, I have found it a pleasure. Using Schwab is a matter of trust, ease of use and useful, valuable products like Investor Checking. A lower trading price elsewhere would not be a reason for me to change.

  6. David says:

    I use http://www.optionshouse.com
    Its only $2.95 per trade.

    • Tom says:

      I also use optionshouse. I am always puzzled why more people don’t know about it. Probably less advertising.

      It is the cheapest as far as I can tell. Offers the same level of discount brokerage as the others. They also are running a 100 trade free commission deal right now.

  7. Dave says:

    I’m a lazy investor and much prefer to buy low cost mutual funds – because of this, I don’t have a brokerage account, just an account at Vanguard.

  8. “the only differences will come down to the commissions. Right?”

    NO. NO. NO.

    There’s much more important stuff. In fact, the most important is the one that folks who are looking at price only overlook.

    EXECUTION. Nothing else matters for larger traders. Getting the best possible price for the customer. Notice that these brokers never mention that part. That’s becasue they don’t cre about good execution. there is no money in it for them to save you cash.

    A few pennies per trade adds up to significant dollars – unless you are buying 200 shares of some stock.

    This is especially true for option traders where saving 5 cents per share on an option is $50 on a 10-lot trade. That’s far more than the commission charge.

    Then there’s customer service. Some clients need hand holding. Others don’t.

    I am NOT suggesting using a costly broker. But commission cost does not tell the story.

  9. Tom says:

    Agreed, the commission can be a bigger expense. But if you place a limit order you know the price you will get if it hits. By the way, what is the brokerage that offers the best execution for small investors. Does it exist?

    • Tom says:

      I should have said execution between bid and ask. That can easily be a bigger cost. Another point for option trading is the cost of each contract. That adds up and usually is more than the flat commission. Again optionshouse is the cheapest. It used to be no cost for each contract but in December they instituted a new fee that works out to $10 for 5 contracts in and out. 15 cents per contract for more than 5. That compares to tradeking at 50 cents, TDAmeritrade at 75 cents, and more with others. It may seem that even at 75 cents its cheap but its really not. Say you trade 100 contracts at $1 roundtrip. That works out $30 for Optionshouse, $100 for Tradeking, and $150 for TDAmeritrade. Same trade but costs you so much more. Then of course, repeat several times a year and you quickly see how you can get eaten up.

      • saladdin says:

        I play very little with stocks because this stuff is a little scary when you start talking contracts, puts etc…. I made $1,000 in 2009 from playing with 2 stocks just basically buy at a price and sell when it got to a point where I was happy.

        saalddin

      • Shannon Paul says:

        Tom –

        Thanks so much to you and David (above) for recommending OptionsHouse. It’s always good to see comments from customers who are happy with our trading platform and pricing.

        I just wanted to let you know that our new pricing structure actually allows options traders to trade up to 5 contracts for $5 on one of our plans (with an additional $1 per contract for anything more than 5 contracts).

        There are actually two different options trading plans that our customers are free to choose between.

        The second plan for higher volume traders is $8.50 plus $0.15 per contract. On this plan, a trade with 5 contracts would cost $9.25. The breakeven point between the two plans is at 10 contracts. However, customers are free to switch between plans. Any request to switch plans will take effect at the beginning of the next trading day beginning at 7:30 a.m. Central Time.

        Also, stock trades are still $2.95 for all OptionsHouse customers.

        If you ever have questions about switching between plans or about the exact commission on a particular type of trade, please feel free to contact customer service directly. They will even help you compare OptionsHouse rates for specific trades with other brokerages.

        Thanks again,
        Shannon Paul
        Community Manager
        PEAK6 Online, parent company of OptionsHouse

    • Right. Limit orders are best. But you may still lose a penny or two per share per trade.

      Interactive Brokers charges only $1 to trade 100 shares. Executions are first rate.

      But they are not for the little guy. There is a $30 month minimum commission (or at least that was the minimum at one time).

  10. zapeta says:

    I have a Schwab account but I’m only using it to receive the rewards from my Schwab Visa card. However, at 8.95 a trade I wouldn’t bother with opening another account. Their phone support has been great!

  11. Adam says:

    I use Tradeking.

  12. Tim says:

    TradeKing charges you an insane amount (1 cent per share, I believe) on penny stocks. When I was using them I believed this was standard, and I ended up paying several hundred dollars in fees to them before I found out that other places charge a flat fee per trade whether it’s a penny stock or not. So make sure you shop around to make sure you’re getting the best price for all types of trades!

  13. Kevin says:

    I’ve just started moving from etrade to schwab. Schwab’s ETFs with $0 transaction fee is what got me to switch.

    • Kevin,

      Schwab is doing you no favors by charging zero commissions for their ETFs. They make their money managing the fund.

      Watch the performance of the fund and annual fees to determine if this is a healthy choice for you.

  14. govenar says:

    Wells Fargo will give you 100 free trades per year (if you have $25,000 in Wells Fargo accounts, including your brokerage balance). I used Wells Fargo for my checking account already, so it’s convenient to use their brokerage; it sweeps balances into/out of the checking account. Note that their free trades only apply to stocks (and some mutual funds), not options, which are $9.95 + $1 per contract.

  15. I used E Trade for years, but I would switch to TradeKing next time. Just makes sense, saving a LOT.

    John DeFlumeri Jr

  16. Izalot says:

    Zeco is pretty cool, easy to use and $4.50 (10 free trades if you you do over 25 trades). I might use Scottrade as there is a brokerage store near by where I live and $7 a trade is not bad!

  17. ebekele says:

    I use sharebuilders. I’m looking into optionshouse – $2.95 per trade!

  18. Shahid says:

    I opened my first brokerage account with Scottrade due to the fact that many years ago, $7 a trade was considered a bargain.

    A year later opened account with Ameritrade (10.95/trade) and then finally opened a trade with Izone @ $5 per trade.

    Who knows……..maybe the future holds trades at $2 a piece? LOL!

  19. Mike Piper says:

    I’ve been intrigued to hear multiple people call Schwab a full-service broker in the last couple days.

    I see the comparison–they charge more than other discount brokerage firms, and they have their own mutual funds, ETFs, etc. But Schwab was actually the pioneer of the discount brokerage industry.

    The term “full-service” brokerage has historically applied to companies like Ed Jones, Merrill, Smith Barney, etc. That is, companies where there’s a specific person who manages your account and where you’d be looking at commissions per trade far in excess of $10 or $20.

    Looks like the terminology is evolving…

  20. Mike Piper says:

    Oh, and in case anybody cares, I have accounts at Vanguard and TradeKing (where I buy Vanguard ETFs). Quite happy with both. :)

  21. I wonder why not more people use Interactive Brokers. It is something like 1$ per trade (there is a minimum commission of $10 per month)

  22. eric says:

    I have/had TD, Schwab, and Sharebuilder but I don’t trade very much.

  23. Joe says:

    I use OptionsXpress primarily because they clearly label which bank(s) hold my cash deposits. They seem to make an effort to use smaller, safer banks, and that’s a big deal to me, especially for an asset that I should assume is “risk free”. Make sure you know where your “risk free” money is being held at the other brokers – it may not be as risk free (or evven FDIC insured) as you think.

  24. abbey alston says:

    I am a complete new to this world of trading. Although my friends guided me in this regard but I always had fear that what if something go wrong. Then one day while searching for best investment institute I came across name of Banc De Binary. Firstly I felt reluctant for my decision but after joining them I feel so satisfied. And now I am glad to say that my decision was right and perfect.


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