How to Choose the Best Brokerage Account: A Complete Guide for New Investors

Here is the problem. Picking the wrong broker can be an expensive mistake.

Choosing a brokerage account is like selecting a cell phone plan – pick the wrong one and you could be locked into paying for expensive features you don’t need, struggle with poor coverage when you need it most, and waste time trying to navigate a confusing interface.

Make the wrong choice, and you could face high fees eating into your investment returns, a clunky platform that make trading difficult, or poor customer service when you need help most. And don’t overlook the fact that account minimums can lock up too much of your money. With so much to worry about let’s figure out how to simplify the selection.

Why This Decision Matters More Than You Think

The stakes are high. Your broker is the gateway to your financial future. You can think of them as the middleman for every investment you’ll make. As such, they are the foundation of your investment house. Build on a weak foundation, and the whole thing could come crashing down.

Consider this as an example. If you invest $10,000 and your broker charges just 1% more in fees than a competitor, that’s $100 lost in year one. But over 30 years, accounting for compound interest at 7%, that 1% fee difference could cost you over $20,000.

To put that into perspective, twice your originally invested principal could be your opportunity cost with the wrong brokerage selection, so what’s the answer?

Your Step-by-Step Guide to Choosing the Right Broker

Step 1: Know Your Investing Style

Before comparing brokers, you need to know what type of investor you are. If you are not yet sure what kind you are, whether that’s a patient investor like Warren Buffett or a fast trader, ask yourself how often will you trade? Is it going to be daily, weekly, monthly, or yearly?

Then think about what will you invest in, whether that’s stocks, bonds, mutual funds, options, or even forex. Some brokers will do a much better job at simplifying the process of buying stocks while others are experts at facilitating options orders.

Next, figure out how much money can you start with and, crucially, whether you want to be hands-on or hands-off The answers to these questions will guide which broker features matter most to you.

Step 2: Evaluate These Key Features

Before depositing money at a brokerage account, pay close attention to the account minimum. That’s the minimum amount of money required to open and maintain a brokerage account.

What should you look for? Many online brokers now offer $0 minimums so you don’t have to be saddled with a brokerage firm that demands a high initial deposit rate. For example, some premium services require $10,000 or more just to get started. 

For investors looking for premium service, higher minimums might offer better perks. 

Pro tip: Don’t stretch your budget to meet a high minimum. Start where you’re comfortable.

Trading Costs

When it comes to costs, you’ll want to compare key fees to make sure you’re not overpaying.

These days for stock trades most major brokers now offer $0 trades while option contracts typically cost in the range of $0.65 per contract.

If you’re investing in mutual funds they will generally have an expense ratio that is a percentage of the amount you invest. For example, a mutual fund with a 1% expense ratio fee will cost you $100 per year for every $10,000 invested.

Some of the pesky fees that are sometimes applied include account maintenance fees and inactivity fees. These fees are like leaks in your investment bucket where even small drips add up over time so make every effort to avoid them where possible.

Investment Options

Although it seems almost obvious to say it, make sure your broker offers what you want to invest in. If you’re looking for altcoins and cryptocurrencies, you may be better suited at Coinbase, tastytrade or Robinhood than a traditional brokerage house.

Look through the list below and think about which investment options are a good fit for you.

Individual stocks
• Bonds
• Mutual funds
• ETFs
• Options
• Cryptocurrency
• International markets

Trading Platform Features

Next up is what kind of platform features match your trading style. Are you a fast-trader that needs real-time data and quotes? Are you an on-the-go trader who needs a top quality mobile app and advanced charting tools?

Or do you prefer to take a slower and steadier approach, in which case research tools to examine fundamentals are more important alongside educational resources.

The platform should feel like a well-organized toolbox where everything you need is within easy reach.

Step 3: Evaluate Extra Features That Matter

Good brokers will usually offer some mix of research and education too, such as market analysis, stock research reports, and educational videos or webinars.

Other will offer investment screeners, so you can search for stocks with high dividends for example or low price-to-earnings ratio company with high growth rates.

In a sense, these resources are like having a personal investing coach who can guide you to find the investments that best meet your criteria.

Know The Different Types of Accounts Beyond Basic Investing

Before diving into brokers, you need to know what kind of account you want. Think of this like picking the right type of bank account – a checking account serves a different purpose than a savings account. Here are the main types:

Standard Brokerage Account

A standard broker account is much like a regular bank account but for investments with no special tax benefits and you can withdraw money anytime. It tends to be good for general investing and short-term goals.

Retirement Accounts

Retirement accounts are like a piggy bank with tax benefits. They come in various forms, such as a Traditional IRA where you save on taxes now, but pay later and a Roth IRA where you pay taxes now and save later. So too do Solo 401(k) accounts exist, which are special accounts for people who work for themselves.

Special Purpose Accounts

Special Purpose Accounts encompasses a broad umbrella including custodial accounts that allow investing on behalf of kids and 529 Plans that are special accounts just for college savings. 

Another type is a Trust Accounts that can be used to manage inherited money or estate planning.

Security Features You Can’t Ignore

Just like you wouldn’t put your money in a bank without a vault, you shouldn’t trust your investments to a broker without proper security but what exactly should you look for?

Insurance protection comes in the form of FDIC Insurance that protects up to $250,000 of your cash as well as SIPC Insurance that protects up to $500,000 of your investments if the broker goes bankrupt. Some brokers may even offer additional protection above these limits.

Online Security

Online security should be top of mind too. These days most brokerage firms will employ two-factor authentication, which is akin to having two locks on your door instead of one.

Fraud protection is important too and many brokers will reimburse you if someone steals from your account.

So too a good broker will have regular security updates so you’ll be able to see quickly that the broker takes your safety seriously.

Advanced Trading Tools Worth Considering

If you plan to trade actively, other features that might matter to you include paper trading which you can think of as being similar to a flight simulator for investing. You get to practice with fake money before using real cash and so it’s a great way to test strategies without risk.

Extended hours trading is another useful offering that lets you trade before or after regular market hours (9:30 AM – 4:00 PM ET). For those stuck at work during the day or unable to access a brokerage account during those hours, it can be very useful but do be careful because trading volume is usually lower during these times.

Advanced order types are also preferred by most traders these days and include:

Market Orders: Buy/sell right now at current price
• Limit Orders: Only buy/sell at your chosen price
• Stop Orders: Automatically sell if price drops too low
• OCO (One-Cancels-Other): Set up two orders, whichever happens first cancels the other

Customer Service

Once you have a good pulse on the platform and features that matter to you, don’t forget about the customer support extras. Do you care about 24/7 phone support or live chat? What about email support and physical branches?

Obviously a good customer support serviced will have low average response times, so that’s another key criteria to consider before making your decision.

Think of good customer service much like you would an insurance policy. You may not need it often, but when you do, it’s crucial.

Step 4: Compare Top Brokers

As you’ll see below among top brokers the account and stock trade minimums are all zero.

BrokerFidelityCharles SchwabRobinhoodTD AmeritradeInteractive Brokers

Best For	Account Minimum	Stock Trade Fee
Overall Service	$0	$0
Research Tools	$0	$0
Mobile Trading	$0	$0
Education	$0	$0
Advanced Trading	$0	$0

How To Finalize Your Brokerage Selection

Now that you have a keen sense of costs, features, platform tools and customer support, narrow your list down to 2-3 brokers that match your needs.

A good rule of thumb is to open a free demo account with each of them and test their platforms. You might be surprised to find some are highly intuitive while others are challenging to navigate from a user experience perspective. The last thing you want is to find it an uphill climb simply to figure out how to place a trade.

Before making a final decision, it’s also well worth taking a few moments to read recent customer reviews and compare specific fees for your planned trading style.

Red Flags to Watch For

Another good guidepost is to avoid brokers that have unclear fee structures, or worse, lack basic security features.

While it’s unusual and somewhat surprising, some brokers may suffer from frequent platform outages and that could seriously impact your ability to exit a trade fast if you wish one day.

Typically, it’s best to avoid brokers that have poor customer reviews or offer too-good-to-be-true promises.

The Bottom Line

Choosing a broker doesn’t have to be overwhelming, especially if you focus on

Your investing style and needs
1. Core features that matter to you
2. Costs that could impact your returns
3. Quality of tools and support

So, what’s the takeaway? When you want to pick the best broker, keep in mind it’s not going to be the same one for each person due to different trading styles and investment goals so pick the one that best matches your specific needs.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.