I m looking at online discount brokers to determine where to open an IRA account later this year. And in the process Ive learned three important things about online brokerage firms.

First, there are a lot of them. Youve probably heard of many discount sites that allow you to trade stocks online (e.g. Scottrade), but Im guessing there are a lot of online brokers youve never heard of (Sogotrade may be one example). Second, while on the surface they can all seem similar, when you dig deep into what these brokers offer, youll find big differences. For example, not all of them offer the same account types. With some you cant buy mutual funds, while others offer more mutual funds than most. And the stock trading tools available to you vary from one discount broker to the next.

And the third thing Ive learned is that the cost of these discount firms can be tricky to understand, and in the end, maybe not the most important factor. Because I watch every dime we spend, it may seem odd that cost isnt the most important factor to me (after all, we are talking about discount sites, not full service brokerage firms). Ill come back to that in a moment, but first, its important to understand a few things about the fees discount online brokers charge.

How Much Will You Pay To Buy And Sell Equities Online

All of the firms make a point to advertise how much you pay to buy or sell stocks, mutual funds, options, or other equities. Today most trades at discount sites run from about $2.50 to $12 per trade. The key to remember, however, is that many of these firms charge additional fees, depending on how you use your account. These additional fees may include fees for large buy or sell orders, fees to buy or sell stocks trading at less than $1, account maintenance fees, account inactivity fees, and of course interest if you buy on margin.

Because these fees vary among discount brokers, the starting point is to understand how you will use your stock trading account. Will you trade frequently or just once or twice a month (or quarter)? Do you want to set up an automatic investment plan? Will you be buying stocks and mutual funds, or do you also plan to trade options? The answers to these questions will help you narrow the selection and ultimately pick the best broker for you investing needs.

As I mentioned above, cost is not a critical factor for me. Why? For starters, Ill only be buying individual stocks, not options or other more expensive equities. Second, I wont be trading a lotonce or twice a month at the most. So the difference between a $3 trade and a $7 trade is just not that significant for me.

Factors To Consider Other Than Cost

But just like most anything we buy, the cost is just one of many factors to consider. And the same is true when selecting a discount broker. So what are the factors besides cost that we should consider when selecting a discount stock broker? There are several, and they include ease of use, customer service, types of accounts offered, investing tools, type of investments you intend to buy, and account minimums. Ive highlighted these and other factors below in the summary of the best online discount brokers. But just like cost, its important to know your investing goals when you evaluate your options. For example, account minimums may be a non-issue for you if you plan to invest a significant amount of money. Likewise, if you are looking for a specific account time (like an IRA), you can quickly eliminate those discount stock brokers that do not offer that account type.

Summary Of The Best Online Discount Brokers

1) Scottrade. Scottrade is high on my list of potential discount brokers for my IRA account. There are several reasons why Im leaning toward Scottrade. First, the cost is reasonable, with stock trades costing $7. Broker-assisted trades are $27, but Ill rarely if ever use a broker. Scottrade ranks well in broker surveys, including Smart Moneys 2009 survey. Its one downside according to Smart Money is its banking services, but Im not going to be using its banking services. It offers a number of account types, including IRAs and other retirement accounts. And with a Scottrade IRA account, there are no opening, closing, annual or custodian fees. I also like the look-and-feel of the site. Its well organized and easy to navigate. The account minimum is just $500, and there are no inactivity or maintenance fees.

Scottrade has one other feature that I likephysical locations. Among discount online brokers, Scottrade has the largest network of branch offices. While I expect the vast majority of my transactions will be online, its good to know that I can talk to a person face to face if I need to.

You can get more information about Scottrade or open an account by visiting Scottrade .

2) OptionsHouse. At first the word options in the name led me to believe that OptionsHouse only allowed you to trade options. Not true. With OptionsHouse, you can trade stocks, options or spreads. The cost to trade stocks is a flat $3.95, making it one of the lowest cost stock trading alternatives. There are no maintenance fees or monthly minimums, either. According to OptionsHouse, it offers a professional-grade trading platform backed by PEAK6 Investments, one of the largest options trading firms in the world. It is from this platform that OptionsHouse offers an array of professional trading tools:

To give you an idea of the look-and-feel of the OptionsHouse trading platform, here is a screen shot of its online design:

For more information or to open an account online, visit www.optionshouse.com .

3) OptionsXpress. OptionsXpress is another broker with a name suggesting it only handles options. But with OptionsXpress, you can trade just about anything including stocks and futures contracts. Stock trades cost $9.95, which is a bit more than some other discount online brokers. With OptionsXpress, however, there is no additional cost for broker-assisted transactions, which makes it a good option for those that want some help with their trades. Perhaps the one thing that OptionsXpress is best recognized for is its trading tools. Smart Moneys 2009 Broker Survey awarded 5 stars to OptionsXpress for its tools. The tools fall into three categories, designed to help traders find investing opportunities, analyze those opportunities, and finally to execute trades. And these tools include an extensive collection of videos. Here is a short video describing the trading tools offered at OptionsXpress:

Check out our detailed OptionsXpress review. or to get more information and to open an account online, visit www.optionsxpress.com .

4) E*Trade. E*Trade was ranked first among discount stock brokers by Smart Moneys 2009 Broker Survey. E*TRade scored high marks across the board in categories ranging from customer service to research to banking services. While it ranked as one of the best in just two categories (banking services and Research), it scored consistently high in all categories. E*Trades research resources including portfolio management and analysis, stock and fund screeners, independent research, and risk analyzer. Stock trades cost a flat $9.99. In addition, E*Trade is offering free trades for 60 days and up to $600 for new accounts, the details of which you can find on E*Trades website.

And yes, E*Trade boasts the funniest commercials among the discount online brokers. Heres one of my favorites:

To get more information about E*Trade or to open an account online, visit www.etrade.com .

6) Trade King. Trade King is one of the lowest cost discount brokers, with both market or limit stock trades costing $4.95. And there is no additional cost for broker-assisted trades. It has been ranked #1 in customer service by SmartMoney Magazine and Kiplingers. Heres what Kiplingers had to say about Trade Kings customer service:

In this category, TradeKing reigns. We were speaking with a friendly representative within 20 seconds when we called on a busy Monday morning for the stock market. Our e-mail asking a question about our account balance was returned in 7 minutes. You can also contact TradeKing representatives via instant messaging (only Schwab, E*Trade, Siebert and Scottrade lack the IM function on their Web sites).

The final thing Ill mention about TradeKing is what it calls the Trader Network. Through the Trader Network, you can connect with other traders, share strategies and trading tips, and see the hottest trades of the day. To get more information or to open an account, visit www.tradeking.com .