What is an online stock broker?

An online stock broker is a financial firm whose customers can buy and sell stocks in a brokerage account through an online trading platform. You can think of an online stock broker as a conduit to the stock exchanges. In exchange for a commission on every trade, these brokers send your orders on to stock exchanges and market makers, which actually do the heavy lifting of matching your buy order with someone who wants to sell, or vice versa.

But you can’t just buy a stock through your bank account or call the company and buy shares — you need to find one of the best stock brokers.

Fortunately for everyday investors, the brokerage industry has changed dramatically over the past couple of decades. To buy a stock, you used to have to call an individual known as a stockbroker, who placed the order on your behalf. This process was complex — and expensive.

You and I can’t knock on the doors to the stock exchanges and make a trade without a broker. In truth, the stock exchanges as we think of them from their depictions in movies and on TV don’t really exist today. Most trading actually takes place between computers in dimly lit server rooms in New Jersey, a few miles from New York City’s financial district.

Full-service vs. discount brokers

Just as the process for processing stock trades has changed, the terms we use for the people and businesses who facilitate trades has changed, too. Today, instead of using the term “stockbroker” as an all-encompassing term for any person or brokerage firm that deals in stocks, we generally divide companies into two categories: “discount brokers” and “full-service brokers,” labels that better describe what they actually do.

Discount brokers

Online stock brokers are discount brokers. They aren’t in the business of giving you advice or phoning you up with stock picks. Instead, discount brokers focus on the very basic service of helping you buy or sell a stock (or other type of investment) from the convenience of your own home. Because discount brokers forgo many of the frills, they can charge rock-bottom prices for their services. The best online stock brokers charge $0 to place a stock trade — a bargain, especially considering what traditional brokers charge. In addition, discount brokers tend to have lower minimum investment requirements (or no minimums at all), making them accessible to everyone.

Full-service brokers

Brokerage firms we label “full-service brokers” are more closely related to the stockbrokers of days gone by. Full-service brokers often employ human brokers who can help you make a trade, find mutual funds to invest in, or make a retirement plan. That said, full-service brokers are costly, since people are inevitably more expensive than computers. A popular full-service broker charges a minimum of $75 to place a stock trade, and that can jump as high as $500 or more to buy a large amount of stock. Buying a mutual fund through a full-service broker can potentially set you back thousands of dollars, since they often charge fees equal to a portion of the amount you invest. Full-service brokers are more likely to have higher account minimums; some advisors only work with clients who have $1 million in assets or more.

Realistically, the lines between the two types of brokers are starting to blur. Discount brokers now have wealth-management services that offer the help of a human advisor at a full-service price. Some full-service brokers also offer a basic level of service at discounted prices. For example, Merrill Edge® Self-Directed is the discount brokerage arm of the full-service brokerage Merrill Lynch.

Features of the best stock trading platforms

The best brokerage accounts on our list offer different free stock trading apps, different educational resources, and more. With that in mind, here are some of the features we looked at when deciding which online stock brokers were the best in the business, and why they matter to you:

• Commissions and fees: Basic, online stock and ETF trades should be free. Period. Investors now pay $0 commissions at most online stock brokers, and some even offer options trading for free, which can be particularly valuable for active traders. Even some of the best online brokerages charge commissions for mutual fund trades and other services you might need, so it’s still important to compare fee structures.
• Mutual funds: While most brokers charge a commission for mutual fund trading, it’s also important to know that most have a list of hundreds or even thousands of funds that trade with no commissions at all.
• ETF investing: The best ETF stock brokers will not only have $0 online commissions for ETF investing, but they also tend to offer access to a wide array of branded, low-cost ETFs. These branded ETFs are managed by the stock broker’s analyst teams themselves and they often include rock-bottom expense rations.
• Options investing: A well-rounded stock brokerage account will not only offer access to investing in stocks, ETFs, and mutual funds, but also options. The top options trading platforms tend to include $0 commissions for online options trades and high-quality trading software across online, desktop, and mobile devices.
• Account minimums: Many of our favorite online stock brokers don’t have account minimums, but a few do. If you’re a beginning investor, it’s important to verify that you can meet any minimum investment requirements before you select a broker.
• Trading platform: Some stock brokerage accounts have full-featured and complex online stock trading platforms and software available to frequent traders, as well as managed portfolio services from robo-advisors. Other stock brokers take a more simplistic, user-friendly approach. And many have top-notch investing apps that could come in handy if you want to buy and sell stocks from anywhere in the world.
• Research and screeners: One key reason to have an online brokerage account is that you can access a second opinion when you need it. Many of the best brokers offer a full suite of third-party research as well as stock and fund screeners so you can find, for example, the annual fees for investing in a fund, or get help sorting through your choices via parameters like price-to-earnings ratio.

How to pick the best stock broker

The best online brokerage account for you depends on your needs. Here are a few things you might want to consider:

• If you plan to simply buy and hold stocks, you probably don’t need a full-featured trading platform.
• If you primarily plan to buy mutual funds, you should look for the best mutual fund broker, since these brokerage accounts offer low to $0 commissions to buy and sell mutual funds.
• If you are a brand-new investor and only want to invest a few hundred dollars at first, you’ll probably want to look for a broker with no minimum investment requirement.

If you plan on trading bonds or stock options, or plan on making trades over the phone as opposed to online, be sure to look at what each of the top brokers charge for these activities. Comparing the best investment brokers on our list can help you narrow determine which platform has the features you’re looking for