2 characteristics that I insist on when choosing an online broker
Like many people, I have money invested in an online brokerage account. There are many online brokers to choose from, and before opening my account, I did extensive research to choose the best one for my situation.
While I discovered that there is a wide variety of features offered by brokers, there were two in particular that were an absolute must for me. In order for me to open an online account with the company, I didn’t want any commission fees and the ability to trade fractional shares.
Here is why these two characteristics are important to me.
One Email a Day Could Save You Thousands
Expert tips and tricks delivered straight to your inbox that could help save you thousands of dollars. Register now for free access to our Personal Finance Boot Camp.
By submitting your email address, you consent to our sending you money advice as well as products and services which we believe may be of interest to you. You can unsubscribe anytime. Please read our Confidentiality declaration and terms and conditions.
1. No commission fees for transactions
For years, I had to pay a commission to buy and sell stocks. It was the norm in the industry, and I was always frustrated with it because it took away my profits. It also made me wait until I had bigger sums of money before I could invest as it made no sense to buy a stock or two and pay such a high fee to do so.
Fortunately, there are now many options when it comes to commission-free trading, as most online brokerage firms have eliminated these fees. Since there are so many options for businesses that don’t charge you to trade, I absolutely wouldn’t work with a broker that charges this type of cost.
The Ascent’s Picks for Top Online Stock Brokers
Find the best stock broker for you from these top picks. Whether you’re looking for a special sign-up offer, exceptional customer support, $ 0 commissions, intuitive mobile apps, or more, you’ll find a broker who will meet your trading needs.
2. The possibility of trading fractions of shares
The second feature that matters to my brokerage firm is the ability to trade fractional shares. Fractions of shares are partial shares of shares. They are purchased differently from traditional full stocks.
Previously, if you wanted to buy from a company like Amazon, you would specify how many shares you wanted to buy. Instead, with fractional shares, you place an order to buy a specific amount that you want to invest. You will then become the owner of the number of shares you buy, even if it is a fraction of a share.
For example, given that Amazon is trading at around $ 3,400, if I specified that I wanted to buy $ 200 of Amazon stock, I would get around 0.059 of Amazon stock.
Not all brokers offer split stocks, as this is a newer concept, but more and more do. And I want to be able to buy shares in any company I’m interested in, even if the share price is high enough and I don’t have enough money to buy a full share. That is why I will not invest with a broker who does not offer this trading option.
Some brokers who offer split stock trading also have higher investment amount limits than others. For example, they may require you to invest at least $ 5 in fractional shares. Others will allow you to buy as little as 0.001 a share as long as your trade is at least $ 0.01. I don’t trade such a small amount so it’s not a big concern for me. But I made sure that my broker allows me to buy fractions of shares of both stocks and exchange traded funds (AND F). This is because some brokerage firms are more restrictive than others in terms of the types of investments from which you can buy fractions.
Together, the elimination of commissions and the introduction of fractional shares have helped democratize investment. Now anyone can buy stocks in large companies, even if they don’t have a huge fortune to invest. I am happy to be able to take advantage of this new financial freedom, so I expect my broker to give me this opportunity.