Choose the Best Discount Stock Broker to boost your after costs returns
Online Trades at Discount Stock Brokers are 3 times cheaper than assisted trades at these same Brokers (source AAII). As an investor, you’d better trade online.
Now, online trades range from 5$ to 30$ per
trade, a ratio of 1 to 6. By choosing the right stock broker, you can make substantial savings further increasing your
investment returns.
But wait, there is even cheaper: Deep Discount Stock Brokers.
Some innovative online brokers go one step
further in reducing trading costs thanks to window trades.
With window trades, transactions from all investors are grouped and executed in bulk
at specific times of the day called windows. It is not real time trade but,
unless you’re a day trader or invest in illiquid stocks with large
Bid-Ask spreads, window trades make economical sense.
Deep Discount Brokers also offer Market and Limit orders. The rate is similar to that of traditional Discount Brokers but some offer Market and
Limit orders as low as 3.95$/trade.
Choosing the right Account
Deep Discount Stock Brokers propose 2 types of account:
- Stock Basket Account: you don’t pay any transaction fee for your trades.
Instead, a membership fee gives you access to a large number of free trades
every months. You can build a large diversified portfolio of stocks (your own
Mutual Fund) for the cost
of an ETF. This type of account is
extremely well suited to Mechanical Stock Picking where you buy a
portfolio of stocks (5 to 50 stocks) and perform regular rebalancing (every month to every
few years).
- Traditional Account: pay as you trade, typically at less than 4$ per trade.
There may be a monthly account maintenance fee.
The 3 innovative online Brokers are Sharebuilder, Foliofn, BuyAndHold. Now, which one is best and what type of account to choose ?
Major factors in choosing the right broker include your Portfolio Size and
Investment activity.
The table below provides a summary.
Check the following pages depending on your Portfolio size for details:
Discount Stock Brokers - Large Portfolios
Discount Stock Brokers - Medium Portfolios
Discount Stock Brokers - Small Portfolios
Discount Stock Brokers - Summary
| Portfolio | Investor | Best Discount Stock Broker | | >25,000$ | Any | Foliofn Stock Basket Account | | 10,000$< <25,000$ | Active | Foliofn Traditional Account | | 10,000$< <25,000$ | Passive | Sharebuilder Traditional Account | | 10,000$< <25,000$ | Dollar Cost Averager | BuyAndHold Traditional Account | | <10,000$ | Passive | Sharebuilder Traditional Account |
One final note, think about your
portfolio few years down the road. Investing in the stock market is a long term
commitment so make sure your stock broker meets your current as well as your
future needs.
For instance, if you start with less than 10,000$ but think you will reach 25,000$ in 2-3
years, then it may be worth directly going to Foliofn or BuyAndHold and use their traditional
account first. It is usually easier to convert from their traditional account to
their stock
basket rather than transferring from Sharebuilder. It will cost you more to change broker
than to start directly with one that meets your long term needs.
See also the
Stock Broker Fees Calculator to check which Broker and what type of
account (Stock Basket or
traditional Pay as you trade) is best depending on your portfolio size,
investment strategy and trading activity.
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