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  • Writer's pictureScott Richter

The best brokerage firm

You’ve probably seen enough of my stock trading videos by now to know that I personally do almost all of my trading with Charles Schwab. But obviously, that’s not the only brokerage firm out there. In chatting with my Patreon members (who are the only people that get to see updates about my personal trades in real time), I’ve learned that everyone has different criteria as to what constitutes “the best brokerage firm.” From Fidelity Investments, to E*TRADE, to TD Ameritrade, and lots more, there are dozens upon dozens of firms out there (even with many of the recent mergers, like Charles Schwab actually purchasing TD Ameritrade). And just because I personally use Schwab doesn’t mean it will automatically be right for you, too. Really, as you’re researching firms, you should be thinking about things like margin and opening balance requirements, fraction purchases, fee structure, and – especially in recent weeks – reputation and reliability; we’ll talk about all four:

First, and especially as you’re considering which of the four trading levels you want to be involved in (which I blogged about recently), you’ll need to figure out which brokerage firms will even want to take on your business, based on the amount you’re planning on dedicating to trading. There is never any shame in trading with smaller amounts, but if you do, your choice of brokerage firms (and trading levels) is going to be more limited, so definitely keep that in mind.

In fact, this is one of the reasons why Robinhood became so popular with younger investors: Many of the large brokerage firms require you to buy a full share of stock if you’re going to buy any stock at all. Not Robinhood. They offer fraction purchases, so that if you don’t have enough money (or interest) to buy an entire share of stock, you can just buy a fraction of it instead. Say Apple is trading at $150.00 today, but you only have $100.00 in your account? No problem with something like Robinhood, where – unlike many brokerage firms – they’ll allow you to buy 66.66% of that share.

And when it comes to fees, something like Robinhood might sound very appealing, because they appear to have “zero fees” – at first glance. But heed this advice: When you’re shopping for a brokerage firm, be sure to read the fine print. Yes, with Robinhood, there’s no commission in the traditional sense, but believe me, they’re making their money somehow, and that somehow is on the “spread.” Maybe you’ve noticed this before? When you’re buying stock, there’s a difference between the “purchase price” and the “offer.” So, let’s say someone is willing to buy one share of Apple stock at $150.00 a share, but the offer is $150.03. Well, then there’s a three cent spread. Wanna guess who keeps that spread amount on every single trade? That’s right; it’s Robinhood, and it’s much more profitable for them than traditional commissions are with other firms. But it also benefits you if you’re only trading fractions of stocks, because then you don’t have to pay a larger commission on a small trade.

Speaking of Robinhood, that takes us right into reputation and reliability. I already blogged about this last week, but it’s worth bringing it up again here too, in the context of researching where you want to trade. If the recent GameStop (GME) debacle has taught us anything, it’s that a company like Robinhood can really screw you if they want to. Now, might every firm do this if given the opportunity? Perhaps. But Robinhood actually did do it, and they did it pretty severely. These companies’ histories are public record, so also consider that when making your decision.

Whoever you end up choosing, just make sure it’s best for your personal needs. Don’t go with one firm just because everyone else is – they might not be trading in the same volume as you plan to. Either way, let’s all be serious Money Makers this year, and, just like 50 Cent once said, let’s all get rich, or die tryin’.

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