There are a huge number of online stock brokers and platforms on the market, so finding the best one for your strategy can be challenging. In this review, we cover the top 10 things traders should be looking for, including fees, online platforms, worldwide regulation and more. Use our guide to find the right stock broker for you.
What Are Online Stock Brokers?
Online stock brokers offer the ability to purchase company stocks and shares or related derivatives via the internet. Instead of talking to a trader who will sell you a stock they believe will do well, you typically do the research yourself. The brokers will have connections to the stock market and will purchase the stock on your behalf. Trades can be executed at the click of a button, in real-time via their online investing platforms.
How To Compare Online Stock Brokers
No comparison of online stock brokers would be complete without considering the following criteria.
Almost all the highest rated online stock brokers will charge a fee for their service. Those that are free will usually make money through other means.
For example, by offering stock at a price above the market rate.
When selecting an online broker, traders should look for those with relatively low fees to maximise profitability. Some stock broking platforms also offer discounts on charges for limited periods as a promotional technique. But the cheapest service isn’t always the best, so it’s important to consider several other factors in the selection process.
When institutional traders purchase shares on a stock exchange, the minimum order size is usually one share. However, for online traders looking to invest in the likes of Google or Amazon where the price of a single share is worth thousands of dollars, this can be difficult to achieve. To counter this issue, many of the largest online trading brokers offer fractional shares. This means a trader can purchase less than one share, at the value they’re comfortable with.
Stock platforms with fractional shares allow traders with low capital to diversify their portfolio.
Another option for traders with less capital is investing in penny stocks (also known as pink sheets or OTC stocks). Online penny stock brokers offer shares worth less than $1. OTC listings are for businesses that do not meet the strict requirements for floating on a stock exchange. These companies tend to be riskier than larger companies, but can also yield higher profit margins. They’re a great option for traders looking to build a diverse portfolio.
Another important factor to consider when comparing online stock brokers is whether they offer access to global stock exchanges.
Stock market trading is centralised, meaning that shares in most large companies are sold through national exchanges, such as the London Stock Exchange (LSE), New York Stock Exchange (NYSE), or NASDAQ.
Companies will not be listed on all exchanges, therefore, traders should look for a broker with a global reach.
To compare online stock brokers, investors should look for those offering a platform that suits their needs.There are several factors to consider:
- Mobile app – Does the broker offer a mobile app or are you happy to trade exclusively via desktop? Many of the top providers now offer a top-tier mobile application offering direct market access and seamless integration with desktop terminals.
- User interface – Is the platform intuitive? This is where you’ll be staking your investments, so it’s important to feel you can navigate it easily.
- Charts, graphs and indicators – For day traders, a platform that offers enough charts and indicators for technical analysis is crucial. If you’re looking to hold stock over the long term, this may not be necessary.
- Automated investing – For those interested in algorithmic trading, the functionality to support expert advisors (EAs) is vital. Some popular platforms, such as MetaTrader 4 (MT4) and MetaTrader 5 (MT5), provide a codebase with free and paid-for EAs to choose from.
Many of the top online stock brokers offer the ability to maximise positions using leverage.
allows you to multiply the results of a trade. The caps on tend to be much lower than for forex, usually around 1:2 or 1:3. This is a great option for more experienced traders and those with a limited pool of capital.
Contracts For Difference (CFDs)
Most major online will offer a mixture of products based on stocks. One of the most popular options is CFDs. CFDs are a of stocks, meaning you do not own the underlying asset. Instead, you own a contract for the difference in value between the buy and sell price. This may have advantages. In some cases, fees may be lower and the tax implications on profits may be different. Consider whether this is what you’re looking for when selecting an online stock platform.
Deposits & Withdrawals
Most online have minimum deposit requirements. For example, Interactive Brokers has a high minimum balance of 2,000 USD (or equivalent currency), whereas, for eToro, it is just 50 USD (or $200 for non-US residents). Some online stock brokers have no minimum deposits, so it can be useful to shop around. Select a platform that meets your requirements, rather than stretching your budget to meet a minimum account threshold.
The best online accept a selection of payment methods. Traders should look out for the following popular options:
- Credit/debit card
- Bank wire transfer
- E-wallets, e.g Neteller, Skrill
- Payment service providers, e.g PayPal, Apple Pay
Some platforms also accept payment in .
However, this service is limited among those currently selling stocks and shares. It’s also worth looking out for online stock brokers offering instant deposits for same-day trading.
The most reputable online stock brokers will be regulated by the relevant national authority. Before investing, traders should check the broker is authorised by one of the top regulators in the list below:
- Monetary Authority of Singapore (MAS)
- Financial Conduct Authority (FCA) in the UK
- Financial Markets Authority (FMA) in New Zealand
- Canadian Securities Administrators (CSA) in Canada
- Securities and Exchange Commission (SEC) in the USA
- Securities and Exchange Commission (SEC) in Hong Kong
- Dubai Financial Securities Authority (DFSA) in Dubai and UAE
- Australian Securities and Investments Commission (ASIC) in Australia
- Any European body, examples include Cyprus’ CySEC, BaFIN in Germany and MFSA in Malta. European Union laws mean that if a broker is regulated with one authority, they can typically operate across the whole of Europe. Therefore, if a broker is regulated by the CySEC, traders in Ireland, Greece, Netherlands and Norway etc will also be covered.
- In most of Asia, brokers are not usually required to be regulated by their relevant authority, so traders in the Philippines, Sri Lanka, Pakistan, India, and many other Asian countries, should look out for regulation in any reputable authority as an indication of legitimacy.
- Similarly, in Africa, many of the regulatory authorities do not require brokers to be regulated with them.
As a result, traders in African nations such as South Africa, Nigeria, Ghana, Kenya, and Zimbabwe should look out for regulation with any respected authority.
- Each regulator has its own set of rules that a broker must abide by. These are designed to protect retail investors from undue risk. This means that an online stock broker’s offering may differ around the globe.
- Examples of regulator rules that differ globally include:
- Cash bonuses or prizes are restricted in the UK and Europe
- Cryptocurrency trades are restricted by the SEC in the US
- Cryptocurrency derivatives are restricted in the UK by the FCA
- European brokers must display a risk warning to all traders when stock CFDs are offered
- Negative balance protection is required on all regulated margin accounts in the UK, Europe, and Australia
- Leverage restrictions on different stock assets vary globally
- Day trading is subject to restrictions in the US
- Therefore, a stock platform may accept day trading clients in the UK, but not for US citizens. If you’re shopping around for a service that is restricted in your jurisdiction, you could end up selecting an unregulated broker.
The best online stock brokers for beginners will usually provide a demo account. These allow traders to practice and refine a strategy before investing real money. They simulate real-life market conditions, but any orders placed are with ‘paper money’.
A quick look at an online stock broker’s history can usually reveal a lot about their legitimacy.
And even worse, others are designed purely to scam investors.
The good news is, it can be easy to tell which these are.
Look out for the following red flags:
- How did you find out about this broker? Were you cold-called or sent an email or text message out of the blue? These are not the marketing practices of legitimate brokers.
- Offers of ‘making money fast’ or ‘passive income’ are often unrealistic promises. Making sensible investments takes research. These ‘get rich quick’ schemes should serve as a warning to stock traders. Consider why they would be selling their service to you if they have the secret to making money without a time commitment.
- All good online stock brokers will be registered with some form of regulatory authority. They’ll provide you with a broker number (usually at the bottom of their homepage) which will allow you to verify this using the regulator’s register. You can also use the BrokerCheck from the Financial Industry Regulatory Authority (FINRA). This reveals whether there are any outstanding legal actions against the firm.
Final Word On The Best Stock Brokers & Platforms
A thorough comparison of online stock brokers is a crucial step in creating a solid investment portfolio. Luckily, much of this research can be done via the internet, without having to talk to a broker face-to-face. Stock platforms that are regulated, with low fees and a solid selection of graphs and indicators are a great place to start.
Traders with low capital should look for fractional shares or even penny stocks. While reading a review or ranking can be a useful start, selecting a broker is a personal choice based on your unique requirements.
Are Online Stock Brokers Safe?
Online stock brokers can be safe to trade with, as long as you look out for some key capabilities. In particular, stockbrokers should be regulated with a reputable authority such as the SEC, ASIC or FCA. Technology advancements in recent years mean that retail traders can safely and easily enter the market, where previously this was exclusively reserved for institutional investors.
How Do Online Stock Brokers Make Money?
Online stock brokers make money through fees and commission. Many charge an annual account fee, for example, this might be 1% of your total investment value but is usually less. On top of this, there may be an initial charge on the purchase. Some brokers are also ‘market makers’ meaning they create liquidity by taking the other side of a trade.
Sometimes, brokers can make money this way if a trader makes a loss.