THE BLOG
09/29/2016 11:42 am ET Updated Sep 30, 2017

Online Stock Brokers -- How to Choose the Right One

By Kevin Voigt

With the profusion of online stock brokers today, you could be forgiven for not knowing where to start looking.

If you think self-directed investing seems like a heavy lift, you're in good company. A NerdWallet financial literacy survey found that just under 1 in 5 Americans (18.6%) surveyed in 2013 could correctly identify the type of account needed to trade stocks online. So let's start with some basics.

If you're a beginner investor and your goal is to build a nest egg for retirement, try using a tax-advantaged retirement account, such as a 401(k) from your employer or an individual retirement account. The return on a diversified investment portfolio over the long term can be higher than the interest rate on a savings account, which likely won't beat inflation.

If you max out contributions to your retirement accounts for the year and have extra money, or if you have another investing goal, consider opening a brokerage account. It allows you to buy and sell such things as individual stocks, bonds, mutual funds, currencies, futures and options contracts, depending on the broker.

How to start looking

First, it's important to determine the features you want in a brokerage. Look for one with the lowest fees and trading commissions.

Most online stock brokers charge a commission, typically $5 to $10 per trade of stocks, options and exchange-traded funds -- although Robinhood and Loyal3 offer commission-free trades. Some companies charge a transaction fee for buying mutual funds. However, many brokers offer commission-free ETFs and no-transaction-fee mutual funds, which may be attractive if you want those securities in your portfolio.

Also, consider how often you'll trade. A NerdWallet study on online brokerage commissions found that the average investor at the biggest online brokerages -- E-Trade, Charles Schwab and TD Ameritrade -- makes fewer than two trades per month. If you plan to trade infrequently, the cost of the commission may be less important when picking a broker.

Some companies also charge inactivity fees. So if you'll have few trades, look for a brokerage that won't penalize you for not trading for extended periods of time.

Finally, a brokerage's customer support and educational resources will be helpful if you're new to online trading.

The minimum deposit requirement can range from $0 at TD Ameritrade or OptionsHouse to $2,500 or more at other stock brokers. What if you have less money to start with? My colleague Arielle O'Shea's guide to investing your first $500 has tips on how to begin the process.

To find the best broker, you can use NerdWallet's brokerage tool.

Kevin Voigt is a staff writer at NerdWallet, a personal finance website. Email: kevin@nerdwallet.com. Twitter: @kevinvoigt.