How should we go about choosing our broker? Which company is the best fit for my trading style? We bring you the list of the biggest brokers in the US and attempt to identify the best of them.

Types Of Brokers

There are basically two kinds of brokers in America, namely full-service brokers and discount brokers. The full-service brokers offer a much bigger support to the client than the discount brokers — especially by providing analysis and research reports, trading tips, offering professional assistance and guidance on particular trades and so on. However, the client has to pay extra for these services, which implies that full-service brokers charge much higher fees for their service than discount brokers. Choosing a full-service broker may be convenient for people who are just starting in the market and often need a lot of advice and answers to their questions. Some of the biggest banks act as full-service brokers for their clients.

Although, for most of the traders, choosing a discount broker seems to be a better alternative. Especially for those that do their analysis themselves and rarely need telephone assistance during trading. Because discount brokers usually do not do their own research and offer less services than full-service brokers, they can charge clients much lower commissions. When trading through a discount broker, the client places his trades in an computer application that sends them to the broker via internet. That’s why the execution time of the trades is much shorter than if a trade is placed through a phone call – which is yet another advantage. Some well-known discount brokers are for example Interactive Brokers, Sogotrade, Scottrade, or thinkorswim.

There are several things to consider when choosing a broker.

Markets

The most important is that the broker should enable us to trade in the markets we are interested in. Major brokers offer trading in practically all US markets and exchanges.

Maintenance Fee

There are two basic things your broker can charge you. The first is a fixed fee for maintaining your account – which you pay whether you trade or not. The second thing you pay to your broker is commission, which is paid for every trade you make. Discount brokers normally do not charge any maintenance fees.

Commission Per Share

Yet, there are big differences between them regarding the commissions for trades. Some brokers set the commission for a trade according to the amount of shares that are involved in the trade. Such brokers are most convenient for investors and traders that trade stocks in smaller volumes (as a rule, less than 1000 stocks per trade). Interactive Brokers or Lightspeed set their commissions in this fashion.

Commission Per Trade

On the other hand, there are brokers offering the same fee for one trade regardless the amount of shares involved in the trade (so called flat fee). This kind of commissions is offered for example by Sogotrade, E*Trade or Scottrade These brokers are suitable for traders (or investors) who trade in larger volumes (more than 1000 stocks per trade).

Inactivity Fee

Nonetheless, with some brokers you have to be aware of the fact that if you do not make a minimum amount of trades for a certain period, you will automatically be charged an inactivity fee for example at Interactive Brokers or TradeStation.

Minimum Deposit

Besides, another thing to consider is that most brokers require you to make a certain minimum deposit in order to open an account. This is usually several thousand dollars. Although, there are even brokers that require a minimum deposit of $1, and hence they in fact require no minimum deposit to be made.

Types Of Traders

Now, let us review the particular categories of traders and find the most suitable brokers for them.

Swing Trader

This kind of traders leaves positions open for several days. The most important factor for them to consider is the commission per trade (as they make a lot of trades per month). Speed of trade execution is also important for them, but not as vital as it is for day traders because swing traders leave their positions open for longer. On the other hand, account maintenance fees do not matter for these people. Besides, it is important that these traders have access to real time data about prices and volumes traded from their brokers but these are nowadays provided by practically all major brokers.

Suitable Brokers For Swing-Trading On Margin: Interactive Brokers, Just2Trade (they offer low margin rates)

Day Trader/Scalper

These traders open positions for a couple of minutes to a couple of hours and practically never leaves them open overnight. Timely execution of trades is essential for these traders – in order to prevent slippage (a situation when market order is filled at a worse price than is the price it was entered at). Another necessity is the accurate real-time data about prices and traded volumes. It is of advantage if the broker provides more detailed data, such as Level II Quotes or a detailed order book. In addition, it is very helpful if the broker offers real time market news, which he can relay for example from Reuters. Day traders usually make dozens or sometimes even hundreds of trades each month with high volumes, so they often benefit from flat fees. You have to be aware of the fact that day trading in the US is allowed only for accounts with a balance higher than $25,000. Traders with a lower balance may make only a limited amount of day trades.

For Real Professionals: TradeStation

Small Investor/Trader

Investors with a capital of less than $5,000 have much less possibilities to choose from when selecting a broker. Most brokers require certain minimum deposit that the client has to make in order to open an account. This amount usually ranges from $2,000 to $15,000. For a small investor, both commissions for trades and maintenance fees, as well as other fees (e.g. inactivity fees, fees for wire transfers, etc.) are highly important, as they greatly affect his overall performance. For small investors, brokers with very low commissions are the most suitable even though they do not offer much of a customer support.

Investors, as compared to traders, trade relatively rarely. Usually after they open the account, they buy a portfolio of stocks, which they watch and once in a certain period (usually once a year) rebalance — or add particular stocks and remove others. This kind of people does not need the best order execution, as slippage is quite negligible for them, because they tend to hold their stocks for several years. It is also not that important how much commission they pay for the particular trade, because as compared to traders, they trade very little. However, it is important whether they pay a maintenance fee to their broker, as well as if they could be subject to inactivity fees if they do not make a trade for a longer time. That’s why it is better for them to choose a broker that does not charge an inactivity fee even though he may charge higher commissions for trades. Many investors may also require some level of customer service from their broker, especially getting research reports about the market.

Suitable Brokers For Investors (low commissions and fees, no research reports): Sogotrade, Just2Trade, TradeKing, Zecco