How to Choose an Online Broker

Choosing the right online broker as a discount stock brokerage in Canada isn’t difficult when you know what to consider in making your decision. Several factors must be weighed, and what is good for your neighbour, brother, or co-worker might not be the best option for you. Keep in mind that an online broker is ultimately suitable for a DIY investor and is not suitable for someone who requires advice.

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There are several usual considerations in how to choose an online broker:

Minimum account size
Many online brokers will let you start an account with any amount of money, but a few require new accounts to have at least $1,000 and one firm, BMO InvestorLine, has a $5,000 minimum for accounts other than TFSAs (where there’s no minimum).

Account Fees
The easiest way to get going at an online brokerage and not pay any account maintenance or administration fees is to go with a TFSA. Almost universally, they’re exempt from either type of fee.

If you have a very small account, think about how much emphasis you want to put on the cost of trading stocks. There’s not much sense in dividing a few thousand dollars between a bunch of stocks that cost you $29 a trade to buy. You need to consider this factor very carefully and look for the lowest commission.

Make sure you are dealing with a reputable online brokerage firm. Check out the online broker’s privacy and security policies – more fine print, but worth the read. Every online broker you consider, should, for example, be a member of the Canadian Investor Protection Fund.

Look beyond stocks
If you’re trading stocks online, you might think that the only thing an online brokerage needs to offer is stock trading. Even if that is the case for you now, it likely won’t be the only thing you want or need in the future. The best online brokers will offer a variety of investment options, such as mutual funds, bonds and options. Quality low-cost mutual funds can be purchased at no cost through most online brokers. A small number of brokers offer a list of exchange-traded funds that you can buy or sell without paying stock-trading commissions. (The basic ETF is a low-cost index-tracking fund that trades like a stock.) There are a couple of online brokerage firms that are friendly to newcomers. They have low stock-trading commissions and have dispensed with RRSP account admin fees. Almost all brokers offer tax-free savings accounts (TFSAs) without admin fees.

Using the right broker really can have a positive impact on your trading. Online brokers are constantly improving and they generally make the whole process for buying and selling stocks, options and other investments much more efficient and easy to do. That is only true, though, if you use one of the best online brokers in Canada that can provide consistently strong service.

Make your choice, stick to it and prosper with profitable investing!