Broadly speaking there are two types of stock brokers; full-service brokers and discount brokers. These days all brokers offer online trading, and the differences usually come down to the level of services that go with that online trading function. Finding the right broker all depends on what you plan to use that brokerage for. If you are using a service like Logical-Invest, then a discount broker is probably all you will need. Nevertheless, it’s worth going over the differences between the two types of brokers.
Full-Service Brokers
Full-Service Brokers offer all the same services that discount brokers offer, as well as advice based services like retirement planning, tax advice, and portfolio analysis. These extra services are generally offered by qualified, experienced individuals and therefore come at a premium price. Full-service brokers offer their clients the ability to trade online or over the phone.
Traditionally the majority of full-service brokers were owned by the large well-known investment banks like Merrill Lynch, Morgan Stanley, and Citibank. This industry is in the process of significant change and many of the brokers who worked for these companies in the past are now setting up independent advisory firms. These IFAs charge fees based on assets under management rather than advice. The large banks still offer full-service brokers but are losing market share. There are also a number of independent brokers like Raymond James and Edward Jones.
Discount Brokers
Discount brokers originally only offered the ability to buy and sell shares online. Because this is an automated process, they are able to offer the service at much cheaper rates. These days, discount brokers also offer the ability to trade mutual funds and the ability to wrap investments in products like self-directed 401(k)s and IRAs. And you can still trade over the phone, but that usually comes at a premium.
Most brokers, whether full service or discount, also offer technical analysis software, research, investor education and mobile apps. In addition, some brokers offer access to other markets like futures, options, and global markets, as well as a range of banking services like credit cards and mortgages.
The website www.stockbrokers.com offers excellent tools for comparing the features offered and the fees charged by all the top brokers.
The Best Brokers for ETF Rotation Strategies
For investors following subscription services such as those offered by Logical-Invest, there are two factors that are most important. The first is fees and the second is reliability and trust. All of the brokers listed here are well known and reputable. Investors need to be a little more careful when using a broker based outside of major financial centers.
With any investment strategy fees play a large in determining the eventual return. Investors following an ETF rotation strategy should choose the broker with the lowest fees and of course access to all the ETFs, they will need to trade.
Below are the best-known discount brokers. Which of these brokers you choose will have little to no impact on your performance when following a rotational strategy. However, you may wish to learn about charting, or access more research. In that case, some brokers may be better suited than others.
Well Known Brokers
Charles Schwab:
• Commission per trade: $ 4.95
• Minimum Account Size: $ 1,000
• Other: Largest range of commission free ETFs, good interface.
• A good choice for low volume trading.
TD Ameritrade:
• Commission per trade: $ 6.95
• Minimum Account Size: $ 0
• Other: Best charting platform and biggest range of products.
E-Trade:
• Commission per trade: $ 6.95
• Minimum Account Size: $ 500
• Other: Good all-round broker with a great mobile app.
Interactive Brokers:
• Commission per trade: $0.005 per share
• Minimum Account Size: $ 0
• Other: Cheapest option for very active traders and professionals.
Merrill Edge:
• Commission per trade: $ 6.95
• Minimum Account Size: $ 0
• Other: Good research, very cheap for high volume traders.
Fidelity Investments:
• Commission per trade: $ 4.95
• Minimum Account Size: $ 2,500
• Other: Good research, highly rated overall, and one of the cheapest options for low volume traders.
Scottrade:
• Commission per trade: $ 6.95
• Minimum Account Size: $ 2,500
• Other: Cheapest broker for mutual fund trading.
Robinhood:
• Commission per trade: $ 0
• Minimum Account Size: $ 0
• Other: Zero cost, but you can only trade on the mobile app which has limited functionality.
Ally Invest:
• Commission per trade: $ 4.95
• Minimum Account Size: $ 0
• Other: The best education sections in the market.
TradeStation:
• Commission per trade: $ 5
• Minimum Account Size: $ 5,000
• Other: The best charting and other tools on the market.
The two that stand out for ETF investors are Charles Schwab and Fidelity, but there is nothing wrong with TD Ameritrade, E-Trade, Ally Invest and Merrill Edge either. TradeStation and Interactive brokers are better suited to very active traders, and Robinhood is a little gimmicky at this stage.
If you choose to use a full-service broker for their advice based services, it’s still worth considering using a discount broker for ETF trading. The total cost will probably be lower, and you will be able to keep the accounts and strategies separated.