There are many people with opinions on stock brokerages, but few who have used as many as I have. While I would love it if there were one broker that was best for everyone, there is not. So here are my picks and pans. I note when I have used a broker.
Best Broker for Investors
Scottrade is far and away the best broker for long-term investors who do not trade very often. Trades are cheap ($7), nuisance fees are minimal, and fills on orders are good. There are a large number of no-transaction fee mutual funds, and trades of other mutual funds are just $17 each. There is also a low minimum balance of $500. While my account at Scottrade is currently inactive, I will likely transfer some IRAs to Scottrade from E*Trade.
Best Broker for Short Sellers
At the moment this is a tie between Think or Swim and Interactive Brokers. I have been using Interactive Brokers for awhile and I am just trying out Think or Swim. These are the only two discount brokers of which I am aware that allow short selling of stocks under $5 and OTC and Pinksheets stocks. They also both have decent systems for telling if shares are shortable. Interactive Brokers has a color-coded alert in its Trader Workstation, while Think or Swim will tell you whether a stock is hard or easy to borrow. Most brokers will not tell you that information prior to placing a short sale trade. Think or Swim and Interactive Brokers have different pricing systems, so depending upon how you trade one may be cheaper than the other.
Best Broker for Mobile Traders
While many brokerages have WAP trading platforms for mobile phone browsers, Think or Swim has dedicated applications for Blackberries, Windows smart phones, and (coming soon) iPhones. If you think you might do significant trading from your phone or PDA, Think or Swim is the best bet.
Best Brokerage for Trading Foreign Markets
While E*Trade garnered much attention when it introduced foreign trading, Interactive Brokers has been doing it longer and does it much better. Trades are cheap, market data is accurate, and Interactive Brokers allows trading in many more countries than does E*Trade.
Brokers with Interesting Fee Structures
There are many discount brokers nowadays, some with interesting or unusual fee structures. Sogotrade offers some of the cheapest trades around ($3 per trade or $1.50 per trade with a monthly fee of $10) and I find it quite easy to use (although I quit using it when I consolidated my accounts at Interactive Brokers). It also offers automatic investments so it could be a good choice for both active traders and long-term investors. Zecco offers 10 free trades a month if you have at least $2500 in equity. FolioFN allows creation of what are essentially your own mutual funds and allows you to trade those funds at very low cost. Considering the proliferation of ETFs, FolioFN seems less and less worthwhile to me.
Potentially Worthwhile Brokers
Tradeking has been rated highly by others and it has cheap trades on stocks and options. OptionsXpress is not as highly rated as it used to be, likely because its commissions have not fallen much over the last couple years. Charles Schwab is geared towards people who want a bit of handholding.
Worst Brokerages
E*Trade and Ameritrade win this dubious award. Both charge many nuisance fees and relatively high commissions. The extras that they offer are not useful to anyone who has any clue what they are doing. Furthermore, E*Trade earns a special demerit for being the broker most likely to go bankrupt, due to its ill-fated foray into mortgage-backed securities. I started out with E*Trade, although I moved most of my money out of it last summer and I will transfer a couple IRAs this summer.
Also Rans
There are a number of other me-too brokerages that don’t seem to offer much of anything that better brokers do not offer. Firstrade is pretty much identical to Scottrade, except without all the Scottrade local offices and the size of Scottrade. Ameritrade iZone is a cheaper ($5 per trade) version of Ameritrade, but it does not offer as many features as some other discount brokers and it is not nearly the cheapest. I used iZone for a year and I was not always happy with my order fills.
Disclosure: I have no position in any company mentioned. I currently have funded accounts at Scottrade, Interactive Brokers, E*Trade, and Think or Swim.