Unlike long-term investing for the future, active stock trading has qualities in common with gambling. On top of that, it’s expensive gambling. When you step up to a quarter slot machine, you know each bet will cost a quarter. You don’t lose a nickel on each spin as a “transaction fee.” In order to play the stock market, with “play” being the operative word, you lose money right off the bat in the form of commissions.
So if you’re going to invest in stocks, it makes sense to find the least expensive option. Here are some of the more popular choices, updated for November 2011. If you have experiences with these brokerages, please feel free to share your comments at the bottom of this article.
To lower your tax burden this year by up to $5,000, consider opening up an IRA (Individual Retirement Account). Mint.com has an IRA wizard that can show you what kind of IRA to open and where to open it.
Low Annual Fee
Betterment. Betterment is a brand new investment website which takes all of the guesswork out of making money. Similar to other brokers on this list, Betterment allows users to purchase stocks and bond ETF’s but focuses more on automation, so investors don’t have to spend hours each week putting together their portfolio. Fees are charged on an annual basis and a $25 cash bonus is given to all new investors who sign up specifically from Consumerism Commentary.
Zecco. Zecco offers up to ten free trades every month if you maintain a minimum of $25,000 with the brokerage or a minimum of 25 trades. Otherwise, each trade costs $4.95. These are all real-time transactions, not bulk, like ShareBuilder. Zecco charges $10 if you want to buy a no-load mutual fund, however. That’s an unappealing fee, and it’s a reminder than one should keep holdings in an appropriate account. Zecco might be a good low-cost option for stock trading, but Vanguard and Fidelity might be more appropriate for mutual funds.
ShareBuilder. ShareBuilder’s lowest commission fee on an account without a monthly fee is $4. A few years ago, ShareBuilder was incorporated into ING Direct. I’ve had several years’ worth of experiences with ShareBuilder, and I have never had any problems. I currently have three investment accounts, each initiated with free money from account opening bonuses. I invested in one exchange-traded fund and two stocks. The accounts haven’t fared well, but since I’m playing with small amounts of free money, I am not shouldering much overall risk to my portfolio.
TradeKing. This online brokerage features low $4.95 online trades. SmartMoney Magazine has awarded TradeKing the award for Best Discount Broker in 2006 and 2007 and Best Customer Service among discount brokerages in 2008. TradeKing continually sports $50 cash bonuses for signing up during the summer and offers users a community of stock traders to help you make the best decisions for your portfolio.
Scottrade. Three years ago, Wachovia announced they were adding a $50 annual fee to my discount brokerage account. I tried to get the fee waived, but my protests fell on deaf ears. Rather than paying the $50 fee once and continuing to do so every year, I opted to pay the $75 account termination fee to move my funds to Scottrade. Scottrade offers no account fees other than the $7 commission for online trading. As I was holding only one mutual fund and I didn’t plan to do any trading, the account was free for me.
Since I am not an active trader, I don’t actively seek out new discount brokerages. If you have experiences you’d like to share, please leave comments below.
Updated May 1, 2012 and originally published May 27, 2008. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @flexo on Twitter and visit our Facebook page for more updates.