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 investors of all levels, for every kind of market.
Many cost-conscious traders look for brokers with very low fees. While most online brokers eliminated trading fees in 2019, many still charge commissions for more advanced trading like options. These types of brokers can also be attractive to more experienced traders who do not need investment advice or analysis. When looking at the best low-cost brokers, we over-weighted the cost categories in our methodology and ensured that trading technology was still an important factor.
Best Online Brokers for Low Costs in October 2020:
- tastyworks: Best Low-Cost Online Broker
- Interactive Brokers: Best Broker for Low Margin Rates and Best Broker for Fractional Shares
- eOption: Best Low-Cost Options Broker
Best Low-Cost Online Broker: tastyworks
- Account Minimum: $0
- Fees: $0.00 stock trades, $1.00 to open options trades $0.00 to close
Tastyworks' customers pay no commission to trade U.S. equities online, and there is no per-leg fee for options trades. Tastyworks has a unique fee structure for options trades, charging $1 per contract to open a position, while closing trades are free. There is a maximum of $10 per leg for options trades, so traders who place large spread orders are happy. Stock and ETF commissions are $0. Exchange and regulatory fees are added to the commissions.
Customizable trading platform with streaming real-time quotes.
Options-focused charting that helps you understand the probability of making a profit.
A video player for keeping an eye on the tastytrade personalities is built in.
If you're new to trading options, the platform looks bewildering at first.
No bonds or CDs available.
Portfolio analysis requires using a separate website.
Interactive Brokers: Best Broker for Low Margin Rates and Best Broker for Fractional Shares
- Account Minimum: $0
- Fees: Maximum $0.005 per share for Pro platform or 1% of trade value, $0 for IBKR Lite
With most of the large brokers cutting their equity commissions to $0, Interactive Brokers has gone from being one of the lowest cost brokers to being comparatively expensive when it comes to trading. Interactive Brokers’ fee structure is rather complex. There are three types of commissions for U.S. equities. However, margin interest at a $100,000 balance is 2.55%. These are the lowest interest rates among the brokers surveyed.
In addition, Interactive Brokers has been at the forefront of offering the ability to trade fractional shares. The company has offered some form of fractional shares trading longer than other brokers surveyed. Fractional shares trading is offered for U.S. stocks listed on NYSE, AMEX, NASDAQ, ARCA, or BATS, as well as OTC Pink U.S. penny stocks with average daily volume above $10 million and market cap above $400 million. Non-U.S. stocks are not available for fractional shares trading at this time.
Extremely smart order router.
Wide range of offerings around the world and across asset classes.
Mutual Fund Replicator finds less expensive ETFs.
Streaming data runs on a single device at a time.
IBKR Lite customers cannot use the smart order router.
Small or inactive accounts generate substantial fees.
Best Low-Cost Options Broker: eOption
- Account Minimum: $0
- Fees: $0 per stock/ETF trade, $1.99 base per leg plus $0.10 per contract for options trades
eOption charges no base commission for options trades and the per-contract fee is significantly lower than its competitors, making it great for heavy options traders. eOption also offers commission-free stock and ETF trading so those who are options-oriented traders but also want access to other assets at a low cost will have no issues here. Clearing and exchange fees, typically a fraction of a penny per share, are spelled out on the order confirmation screen and are passed through to customers. eOption also scored highly for its relatively low margin rates.
eOption offers great value for frequent options traders.
The browser-based eOption Trader platform is easy to use.
Newsletter subscribers can auto-trade their alerts.
Limited education offerings.
Newsfeeds are limited.
Any OTCBB (penny stock) trade must be made with a live broker.
What Do Brokers Charge to Trade?
Brokers can charge a variety of fees depending on the services they offer. Here are some fees you can typically expect at a brokerage:
- Stock Trade Fee (per trade): Typically between $0.00 and $6.95
- Stock Trade Fee (per share): Typically between $0.006 and $0.01
- Broker-Assisted Trade Fee: Typically between $0.00 and $50.00
- Mutual Fund Trade Fee: Typically between $0.00 and $50.00
Some brokers charge a per-leg fee for options trades, so frequent spread traders might want to look for brokers who only charge a per-contract fee.
Rise of Free Trading
The landscape of the online brokerage industry has changed dramatically over the last few years, most notably with the change in costs for clients. As volatility returned in 2018 many investors retreated to the sidelines. As a result, brokers needed to make their platforms as attractive as possible to bring fearful investors back.
One method for doing so was by reducing commission fees which, in some cases, went as far as making trades completely free. As brokerages reduced costs, it caused a chain reaction. Brokers needed to remain competitive and lower their prices.
While most brokers were simply reducing costs for their clients, others were going a different route by completely eliminating commissions. One of the recent brokers to offer commission-free trading was Robinhood. Though they charge no commissions for trades, they make money in other ways, including payment for order flow and interest on cash in accounts.
Discount Brokers vs. Full-Service Brokers
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 would. Full-service brokers can offer 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 less expensive, 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.
Pros & Cons of Discount Brokers
Discount brokers can be ideal for those looking to save money, but if you are newer to the investment world and need more hands-on guidance they may not be worth it for you.
No need to worry about biased investment recommendations
Access to basic educational resources to help you do it yourself
No advice or guidance
Possible hidden fees
Less hands-on customer service
Investopedia is dedicated to providing investors with unbiased, comprehensive reviews and ratings of online brokers. Our reviews are the result of months of evaluating all aspects of an online broker’s platform, including the user experience, the quality of trade executions, the products available on its platforms, costs and fees, security, the mobile experience and customer service. We established a rating scale based on our criteria, collecting thousands of data points that we weighed into our star-scoring system.
In addition, every broker we surveyed was required to fill out an extensive survey about all aspects of its platform that we used in our testing. Many of the online brokers we evaluated provided us with in-person demonstrations of its platforms at our offices.
Cost-conscious traders look for brokers with very low fees. This type of broker can also be attractive to more experienced traders who do not need investment advice or analysis. When looking at our top discount brokers, we overweighted the cost categories in our methodology and ensured that trading technology was still an important factor.
Our team of industry experts, led by Theresa W. Carey, conducted our reviews and developed this best-in-industry methodology for ranking online investing platforms for users at all levels. Click here to read our full methodology.