Selecting The Best Online Brokerage

I’ll preface this article by saying I don’t purport to be any sort of financial expert. I am just an average 31 year old guy who recently went on a quest to find his first online brokerage. I have 401k / IRA accounts with Fidelity through my work. I wanted a separate brokerage account for what I consider my mad money gambling with an edge account. I don’t like Vegas style gambling because the house usually wins in the end. I only consider this brokerage account gambling because I plan to buy one off stocks against the advice of all the experts who say to put money in a low fee index fund and let it sit there. I’m not completely crazy though. I follow the expert advice for my Fidelity accounts.

What I Considered When Selecting An Online Broker

1. How much of a signup bonus can I earn

2. The minimum funding amount

3. Cost per trade

4. The reputation of the online brokerage

5. Does the brokerage conduct a hard credit pull

 

Signup Bonus

If you have millions of dollars, a signup bonus might not be important to you. I’m one of those rare critters that even when I have millions of dollars, a few hundred dollar signup bonus will still make me giddy. I love free money, and I doubt that component of my makeup will ever change.

OptionXpress – this is the company I selected because they pay you $100 dollars within one month of funding the account with at least $500 dollars and executing three trades within twelve months. They are owned by Charles Schwab. It gave me a degree of comfort to know that I wasn’t going with some mom and pop operation likely to use my meager funds to bankroll the next London Whale. The downsides of OptionsXpress are a horrendous website and $8.95 trades. This latter amount might not sound like much, but given that trades can be had for as little as a dollar, it can add up. This option will be available until December 31, 2014.

optionxpress promo

A second bonus option from OptionXpress is 50 free trades if you fund with at least $5000. For this option you have to open the account by September 30, 2014. Rebates on the first 50 trades up to $750 in value will be refunded until March 30, 2015.

optionxpress 50 free trades

TradeKing – I would have gone with them had the signup bonus been more advantageous to my circumstance. They offer two bonuses that can seemingly be stacked. One is a $50 bonus and the other is reimbursement for up to $150 in transfer fees. To qualify for the $50 bonus, you need to fund your account within 30 days with at least $3000 and execute three trades within 90 days. As you can see the timeline is stricter than OptionsXpress and the bonus amount is half as much. To qualify for the $150 in transfer fee reimbursement, you have to mail or fax the account transfer form along with the most recent statement from your last broker. They also make you submit an account transfer fee reimbursement form. This process is undoubtedly a pain, but I usually don’t mind jumping through these kind of hoops.

tradeking offer

 

Optionshouse – this is an interesting choice if you are looking to make frequent trades. If you fund an account with at least $5,000, they will give you 100 commission free trades. You have to input the coupon code FREE100 to qualify and the trades are only good for 60 days. You must fund the account within 30 days.

optionshouse 100 free trades

Other great signup bonuses exist. Unfortunately, most require more money than I have to invest at this point in my life. Another one within my reach and most people I know is the $50 bonus, Sharebuilder offers is your open an IRA with them with at least $5000. This is an opportunity many of my friends could take advantage of since they need to rollover old 401k’s from previous employers.

Less Interesting Signup Bonuses

  • E-trade requires a deposit of at least $25,000 to earn a $200 bonus. This amount is tiered up to a $2500 bonus for investing over $1,000,000.
  • Scottrade offers a similar deal with a $100 bonus with funding of at least $50,000. The tiered bonuses go up to $2000 with over a million dollars in funding. As you can see, these bonus amounts aren’t as lucrative as E-trade. Scottrade only charges $7 per trade compared to $9.99 with E-Trade though.

 

Minimum Funding Amount

OptionXpress – no minimum balance requirements and free to option. You will need to deposit at least $500 to take advantage of their $100 bonus after three trades.

Tradeking – there is no minimum with Tradeking to open an account. As federal regulations require, a margin account requires at least $2,000.

Optionshouse – $1000 minimum to open a regular account or $2000 to open a margin account.

Scottrade – $500 minimum to open an account.

E-trade – $500 minimum to open a new brokerage account.

Interactive Brokers – I haven’t mentioned this company yet. They require a relatively high level of funding at $10,000. The benefit is $1 trades for up to 100 shares. You also have to spend at least $10 per month with this company or $20 per month if your balance falls under $2000.

 

Cost Per Trade

I’ve already discussed most of these Optionshouse ($4.75) and Tradeking ($4.95) are the cheapest companies without any catches. OptionXpress, the company I registered with, charges $8.95 per trade. I wasn’t too worried about this rate since I plan to make a handful of purchases rather than trying to be a day trader. Scotttrade charges a very fair $7 per trade. E-trade manages to get by at almost $10 per trade. These rates are for making online trades yourself. Broker assisted trades frequently cost well over thirty dollars.

 

Reputation

On the very slim chance your brokerage failed, you should be fine as long as it is FDIC insured for up to $500,000 in securities and $250,000 in cash. I mostly worried about reputation because of the recent banking crisis and specifically, incidents like those with Jon Corzine at MF Global. In the case of that firm, client money was used to hide losses on billions in currency bets. In the end, 1.6 billion dollars disappeared and the brokerage collapsed. The firm wants to reimburse clients at 93%. While that wouldn’t be a catastrophe for most, it would sting anyone.

 

Does The Brokerage Conduct A Hard Credit Pull?

I specifically asked OptionXpress if they did a hard pull before opening my account. They reassured me that they do not. The problem with a hard pull is that it will lower your FICO score temporarily and if you have several such inquiries, the drop can be dramatic.

Of the aforementioned companies, Scottrade is notable for doing a hard pull. From my common mans perspective, it really is a shitty and unwarranted move. If you are interested in finding more institutions that do hard credit pulls, Fatwallet has the mother of all lists here. Here is information from Investopedia about a hard credit inquiry.

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