What Qualifies as a Cheap Brokerage? | Cheapest Online Broker

If you are looking for a cheap brokerage, you are in luck. Compared to the price of buying or selling stock just 10 years ago, you are likely to pay only a small fraction of what it cost back then. Since online brokerages have automated the entire trading process and removed the stock broker from the transaction, they can offer the use of their trading platform at a deep discount. Go Directly to the Cheap Brokerage Chart on this page

To better understand this, just compare the cost of you placing a trade online, which will cost you in the range of $5.00 to $10.00. Compare that to the cost, with the same cheap brokerage, if you call in to have a broker assist with the trade. It could cost you $45.00. So one way to answer the question of "what qualifies as a cheap brokerage" is that all the top online brokers are cheap.

But even when you understand that the cost of placing a trade has come down dramatically over the past decade, there is a big difference among the top brokers. OptionsHouse changes a trading fee of $3.95 per trade. ETrade and TD Ameritrade can charge you $9.99. So they are two and half times more expensive. So the question is whether that is enough to worry about since overall the cost is low for everybody.

The answer is that it is important for this reason. In the old days when you dad called his broker, he was "investing". He would buy a stock and hold it for a long time; weeks, months or years. So paying $70.00 in trading fees was not that painful because he did not trade frequently. Today, individuals want to use a cheap brokerage because they are "trading" stocks frequently.

Today, traders use the stock market to generate income. So they place trades frequently, holding them for weeks at the longest and often for days or hours or minutes or even seconds. They make money by tracking the movement of stocks throughout the day and selling when they have achieved the profit they are looking for. Today's trader may trade 20 stocks, which would take 40 trades (and trading fees) to execute a buy and a sell. That is less than one stock traded per day, which is not that much. But even at that low level, there is a big difference between paying $5.00 per trade and $10.00 per trade. That is $200 worth of your money that would end up in the brokerages account rather than yours at the end of the month.

Now consider it if an active trader placed ten times the number of trades - 200 buys and 200 sells. The difference is now an extra $2,000 per month that you would pay in fees if you used the more expensive broker. That is real money.

Among the top online brokers, here is a practical breakdown for what qualifies as a cheap brokerage today:

Less than $5.00 - This is a cheap brokerage. In this category you have TradeKing, OptionsHouse and Zecco.

$5.01 - $7.50 - These are the Mid-Tier brokerages. In this category, you have Scottrade and Trade Monster.

$7.51 - $$9.99 - These are High-End brokerages. In this category, you have ETrade, Schwab and TD Ameritrade.

The comparison chart will help you find a cheap brokerage by comparing the top online brokers in a side-by-side format. Once you select your online broker, setting up an online trading account involves:

1) Completing an online application (there is no cost to do this)
2) Depositing funds into your account - Now you are ready for trading!

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Online Broker	EXAMPLE COST: (for 25 trades per month)	Overall Rating	Trading Fees & Account Minimums	Additional Trading Fees
Overall Rating = 5 Stars OptionsHouse	$98.75	Very low overall trading costs Flat-rate pricing with no account minimum	$3.95 per trade ============= No Account Minimum (Fund your account with any amount)	None
Overall Rating = 4 Stars Zecco	$123.75	Low overall trading cost with $4.95 per trade pricing	$4.95 per trade ============= No Account Minimum (Fund your account with any amount)	Pricing for equities and ETFs priced under $1.00 per share will be $6.95 per trade
Overall Rating = 4 Stars TradeKing	$123.75	Low, flat-rate pricing and no account minimums	$4.95 per trade ============= No Account Minimum (Fund your account with any amount)	Add $0.01 per share for stocks priced $2.00 or less. $100 minimum per order in OTCBB and Pink Sheet stocks.
Overall Rating = 3.5 Stars Scottrade	$175.00	Moderate, flat-rate pricing, low account minimums and no added fees.	$7.00 per trade ============= $500 Account Minimum	For stocks priced under $1, add ½% of the principal value. Most foreign and pink sheet stocks must be traded with broker assistance for a $27 commission.
Overall Rating = 3 Stars Schwab	$223.75	Lowered their rates in 2010 with flat-rate pricing and no added fees.	$8.95 per trade ============= $1,000 Account Minimum	None
Overall Rating = 3 Stars E-Trade	$249.75	Tiered pricing may put all but high-volume traders at the high-cost end	Tiered from $9.99-$7.99 per trade ============= $2,000 Account Minimum	Commission based on number of trades per quarter and account balance.
Overall Rating = 3 Stars TD Ameritrade	$249.75	Higher end, flat-rate pricing with no added fees.	$9.99 per trade ============= $2,000 Account Minimum	None

About this Cheap Online Broker Comparison Chart

This Cheap Online Broker Comparison Chart looks at the most prominent online brokers from the perspective of a new trader or beginning trader. While there are many ways to compare online brokers, including availability of investment products, banking services or sophistication of its trading platform, a beginner especially should be concerned at first with cost factors and overall service quality ratings.

Cost Factors

In order to get a complete view of total cost when you compare online brokers, look at all factors including trading fees (the cost to the trader for executing a single trade, whether a "buy" or "sell" trade. This can be misleading at first because buying a stock and then later selling it involves two trades. So a broker with $5.00 per trade fee will cost you $10.00 to buy and sell. A broker with a $10.00 per trade fee will cost you $20.00. After you sell a stock is when you determine your profit or loss and these fees must be included in your accounting. When you compare online brokers, there are also some "additional" fees that are charged based on specific types of trades and these are outlined in the cheapest online broker comparison chart above. "Per Trade" fees may also vary depending upon the number or volume of trades executed over a defined time period, with lower fees charged as trading volume increases. A "Flat-Rate" broker is one that charges the same "per trade" fee regardless of the type of trade or the volume of trades executed over a defined time period.

"Minimum Balance" and "Required Funding Amounts" are not a cost to you, but they take money out of your pocket and are a factor to be considered. One broker may require a minimum balance be in your account in order to maintain it while another may have no minimum balance. When you are setting up your account, this could mean the difference between depositing $400 into your trading account because that is what you want to start with, or having to deposit $2,500 in your account. A beginning trader may not want to deposit that much into their account initially, so that can be an important decision criteria when selecting your trading broker. The broker comparison includes these costs for you to compare brokers with complete information.

Cheap Online Broker Star Rating

This review is primarily fact-based, reporting the brokers pricing schedule and fees policies and ratings given by the named publications. Based on the totality of the Cost Factors and the Quality Factors, a star rating is given to summarize that particular online broker's performance in that category relative to its competitors. The overall star rating can be used to directly compare brokers by combining the Cost and Quality Factor ratings, using equal weighting (50% given to each) to arrive at a summary rating that can be used to choose a broker you want to open a trading account with.

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