How to pick your online brokerage
So you want to understand how to pick an online brokerage. Well here are some of the key factors you need to consider in doing this:
1) Know yourself of course – We’ve discussed this in previous materials as well – are you a professional trader? an active trader? or like most people, a traditional investor?
This makes a HUGE difference in picking your online broker, because different online brokers cater to both trading expertise and the level of activity in your trading account. For example, the online brokerages you see through the big banks, say TD Waterhouse, tend to have more robust trading systems and usually you are paying more for this vs. your true discount online broker like Questrade which is considered slightly more bare bones, but you can trade at $4.95/trade and for the most part, Questrade’s software has everything one needs to trade.
Level of investing activity is also important. Are you trading once per month? Once every 6 months? This can effect you on multiple levels; firstly, if you are trading multiple times per day (or day trading), you may want to see live streaming data for example, so you are more timely in your decision making. However, if you buy and hold stocks for extended periods of time, live data may not matter to you, instead you’d be fine with 15-20 min delayed data. Some online brokerages charge significantly more for streaming data.
2) Watch out for a few surprise fees that online brokers like to spring on unsuspecting new customers:
– Inactivity fees – some brokers charge anywhere between $25 and $200 a year for extended periods of inactivity in your account; of course, this can seriously hinder your account balance if you are trading in low dollar amounts.
– Minimum Investments – be careful for small print – some online brokers require a minimum $5-10k deposit to fund the account; sometimes, this is out of people’s price range!
3) Range of commissions
Commissions can range from $4.95 per trade to upwards of $200-300 per trade where you have an actively managed account. This is a huge consideration depending on the level of money you have to invest. Depending on how much you deposit into your account, you may be eligible for reduced commissions. For example, some online brokers offer significant discounts if you maintain account balances in excess of $25,000, $50,000 or $100,000.
At the end of the day, dollar bills in your pocket is the consensus factor in picking your online broker. But keep an eye on the key factors above before jumping into bed with the cheapest online broker out there (per trade). It may not be the best decision!