We recognize that we all are living through a particularly volatile time as we deal with this global crisis, and financial markets have also seen unprecedented change, impacting all investors. Our mission has always been to help people make the most informed decisions about how, when and where to invest. Given recent market volatility, and the changes in the online brokerage industry, we are more committed than ever to providing our readers with unbiased and expert reviews of the top investing platforms for beginning investor.
In our list of the best brokers for beginners, we focused on the features that help new investors learn as they are starting their investing journey. Brokers were selected based on top-notch educational resources, easy navigation, clear commission and pricing structures, portfolio construction tools, and a high level of customer service. Some brokers also offered low minimum account balances, and demo accounts to practice.
Best Online Brokers for Beginners:
TD Ameritrade: Best for Beginners and Best for Investor Education
TD Ameritrade, one of the largest online brokers, has made a priority of finding new investors and making it easy for them to get started.1 TD Ameritrade maintains an active social media presence so that a younger audience can gain familiarity with the company and the concept of investing. New users will find that financial education is a key component of TD Ameritrade’s offerings. The broker’s online resources feature expanded learning pathways, ranging from beginner to advanced, to help you understand everything from basic investing concepts to extremely advanced derivatives strategies.2 TD Ameritrade was the only broker in our review to earn the maximum number of points across the education category.
TD Ameritrade is also very welcoming in terms of test driving the platform without making a commitment. You can open an account and poke around without making a deposit, and take advantage of all the learning opportunities until you’re comfortable putting money down.3 TD Ameritrade clearly wants to be part of the process through which new investors become more confident in their skills and take charge of their own financial future.
E*TRADE: Best for Ease of Trading Experience
E*TRADE offers three computer-based and two mobile platforms that appeal to a range of investing styles and interests.4 The standard E*TRADE website and app have been redesigned for investors who are just getting started. Both the website and app have two-level menus with easy access to numerous screening tools, portfolio analysis, and education offerings. There is also a demo account in the form of a paper trading platform modeled after the Power E*TRADE platform for traders to practice on. The more advanced E*TRADE platforms are also elegantly designed and guide you along the way as you graduate to more complex asset classes.
Merrill Edge: Best for Customer Service
In terms of customer service, Merrill Edge is hard to beat. Not only are there great resources built into Merrill Edge’s technology for newcomers to investing and for those exploring various life stages, but you can sit down face-to-face with an advisor in almost any Bank of America branch nationwide. That said, these consultants are primarily focused on life stage planning rather than trading advice.5 Besides its extensive advisor network, Merrill Edge’s two computer-based trading platforms and well-designed native mobile apps have a lot of built-in context-sensitive help. The Story features are especially helpful for understanding what is going on in your portfolio, or what is affecting the performance of a particular stock or fund.
In terms of technical customer support, Merrill Edge offers online chat in addition to a phone line. The phone line offers technical support or trading assistance 24/7 and is answered relatively quickly, though you start with an automated menu before being routed to a human.6
What Is a Stock Broker?
A stock broker is a firm that executes buy and sell orders for stocks and other securities on behalf of retail and institutional clients. Different stock brokers offer varying levels of service and charge a range of commissions and fees based on those services. The most commonly referenced stock broker firms are discount brokers.7
Do You Need a Lot of Money to Use a Stock Broker?
Fortunately, little money is necessary to start a brokerage account. Many discount brokers are offering anywhere between $0 and $500 account minimums, making it easy for anyone to get started.
What You Need to Open a Brokerage Account
Make sure you have the following details handy when you're ready to start the process:
- Date of birth
- Social security number (or taxpayer identification number)
- Telephone number
- E-Mail Address
- Driver's license, passport information, or other government-issued identification
- Employment status and occupation
- Annual income
- Net Worth
Trading vs. Investing
Generally, when people talk about investors, they are referring to the practice of purchasing assets to be held for a long period of time. Investors hold their assets for the long term so that they may reach a retirement goal or so their money can grow more quickly than it would in a standard savings account accruing interest.
In contrast, trading involves buying and selling assets in a short period of time with the goal of making quick profits. Trading is typically seen as riskier than investing and should be avoided by the inexperienced and those new to the stock market.
Discount Brokerage vs. Full-Service Brokerage
There are different types of brokers that beginning investors can consider based on the level of service and cost you are willing to pay. A full-service, or traditional broker, can provide a deeper set of services and products than what a typical discount brokerage does.7 Full-service brokers can give their clients financial and retirement planning as well as tax and investment advice. These additional services and features usually come at a steeper price.
If you are looking for a cheaper, more hands-on approach, a discount broker is a better choice. Discount brokers offer low-commission rates on trades and usually have web-based platforms or apps for you to manage your investments. Discount brokers are cheaper, but require you to pay close attention and educate yourself. Luckily, most discount brokers provide educational resources to help you learn to trade and invest.
How to Pick a Stock Broker
To choose a stock broker you must ask yourself a series of questions. These include: Am I a beginner? How much can I afford to invest right now? Am I a trader or an investor? What kind of assets would I like to invest in?
There are quite a few things to consider when going through this process. To help out with this check out our guide to choosing the right stock broker.
Is My Money Safe in a Brokerage?
All brokerages operating within the U.S. are required to have $500,000 of SIPC protection, which includes a $250,000 limit for cash.8 This means that any holdings with a brokerage that exceed $500,000 could be lost in the event that a brokerage goes bankrupt or is liquidated. That said, retail investors, especially beginners, are unlikely to have accounts that exceed $500,000. Therefore, there's little cause for concern when it comes to the security of your money in a brokerage account.
Can I Withdraw Money From a Stock Broker?
Withdrawing your money from a brokerage is relatively straightforward. When you have money in a brokerage it is generally invested into certain assets. Sometimes there is cash left on the side that is in the account but not invested. This excess cash can always be withdrawn at any time similar to a bank account withdrawal. The other money that is invested can only be withdrawn by liquidating the positions held. This means selling the assets that you purchased like stocks, ETFs, and mutual funds. Once sold, you can withdraw that cash.
Types of Brokerage Accounts
There are a number of types of accounts available at brokerages:
- Cash accounts: A cash account is a brokerage account in which a customer is required to pay the full amount for securities purchased, and buying on margin is prohibited. The Federal Reserve's Regulation T governs cash accounts and the purchase of securities on margin.9 10 This regulation gives investors two business days to pay for securities.
- Margin Accounts: A margin account is a brokerage account in which the broker lends the customer cash to purchase stocks or other financial products. The loan in the account is collateralized by the securities purchased and cash, and comes with a periodic interest rate. Because the customer is investing with borrowed money, the customer is using leverage which will magnify profits and losses for the customer.
- Retirement Accounts: Brokerages offer all types of retirement accounts like Traditional IRAs, Roth IRAs, and 401(k)s.