Choosing the right online discount broker to use for trading and investing in very important. Unfortunately, there isn’t a perfect broker, no one size fits all. Depending on where you live, how much you have to trade with, how experienced of a trader you are, or if you want to buy and short sell stocks will all factor into which broker to choose.
I have put together a questionnaire of sorts that can help choose the best broker to fit various needs.
Are you a United States resident?
A ‘U.S. Person’ is defined by Regulation S (promulgated under the Securities Act of 1933) in Section 902(k)(1) defines a U.S. person as one who is permanently resident inside the United States of America.
My three US based brokers:
In the United States, securities brokers are a dime a dozen! Whether they are a traditional investment advisor/broker or an online discount trading firm – there are literally hundreds of brokers in the United States.
Important to note, simply because a broker shares the same license and takes the same tests as all brokers in the United States, doesn’t mean they all specialize in the same things or are created equally.
Some brokers specialize in long-term investment strategies, while other brokers specialize in short-term trading. There are other brokers who don’t even execute stock trades at all. They focus on currency and commodity trading.
Yes, the world of trading and investing is vast and enormous and can be frustrating and confusing. Let me help you cut through the mess and tell you the US brokers I use…I use all three for different reasons.
My most recent broker find is E*Trade. They’ve been around for ages, since the good old days of the internet’s infancy; however, recently they have become a great broker for hard to borrow stocks, in the $2-10/share range, not for stocks under $2/share like Interactive Brokers. To open an E*Trade account in order to short sell stocks, the minimum is $2,000 and they have a very good trading platform called E*Trade Pro. Their minimum is just $500 if you don’t want to short sell, which probably isn’t a bad thing unless you’ve studied/video lessons very hard since short selling is risky if you’re not fully prepared ahead of time!
The other US broker I have been using for years and has always treated me well is Interactive Brokers. They are open to US residents and non-US residents alike. Traders like me use them for their ability to locate very hard to borrow penny stocks trading under $2/share. Buthas three limitations are their poor customer service, $10,000 account minimum and their confusing trading platform are negatives.
The broker to the All-Stars in small cap stocks is Centerpoint Securities. They are for the big boy and girl traders in penny stocks as they have high account minimums ($30,000) and high trading volume monthly requirements – but if you can meet those requirements, then they are a solid broker. They usually have the best borrows to short all kinds of penny stocks – and they have superior customer service. But be warned, Centerpoint is not meant for beginner traders.
There are many other brokers out there – but the three brokers listed above are the brokers I trade, have experience with and have active accounts with.
Finding and opening a brokerage account is serious and shouldn’t be taken lightly. Do the proper due diligence and consult qualified and certified financial professionals before making any final decisions.
If you are not a resident of the United States, then your choices are limited as to which brokers you can use. This is NOT a bad thing; it simply means you can’t open accounts with a lot of the large firms that limit their customers to United States residents.
General rule I’ve found to work well. If you are a United States resident, use a United States based broker. If you aren’t a United States resident, then don’t use a United States based broker for trading.
As with any broker, it is important to trade with reputable companies. I’ve heard so many horror stories of ‘brokers’ and prop firms having nightmare executions on trades and outrageous fees and commissions, stealing clients’ money, freezing accounts and software problems and going out of business. The risks you take as a trader should be limited to the stocks you trade, not the broker you use to execute the trades! A broker shouldn’t have to be a ‘risk’ for you, but sadly this is often the case.
I use brokers that have a great ability to short sell stocks. In other words, the broker should offer margin trading accounts. If you’re like me and trade small cap stocks (penny stocks), then the broker should specialize in having available small cap stocks to short since many penny stocks are absolute scams, perfect for short selling!
Fees! Fees! Fees! It is important to pay attention to the fees brokers charge. I never choose any broker with the absolute lowest commissions, as I’ve found you get what you pay for so often it’s good to pay an extra few dollars for better service and executions, and it’s not uncommon to have wire transfer fees, margin fees, hard to borrow fees, and other types of fees on top of the commissions you pay to trade. However, if you aren’t careful, the fees could really add up and greatly reduce your trading profits so I always keep an eye out for irregularities.
A quality broker for Non-United States residents is Alliance. They specialize in small accounts and accommodate small cap traders. Their minimum is just $1,000, they’ve been in the securities industry for 30+ years and they are are based offshore. A big plus is they clear through ETC, which means they have access to hard to borrow stocks, great for short selling penny stocks. Access to hard to borrow stocks is very important to successfully trade my strategy. There are many brokers out there; however, most do not cater to, nor care about small cap stocks, also known as penny stocks. Alliance has fairly priced fees and they use DAS as their trading software, which is a great software to use.
Another good non-US resident accepting broker is Interactive Brokers. They also have hard to borrow stocks available for short selling, especially stocks under $2/share. Their biggest strength as a broker is their hard to borrow list for shorts and solid executions. Because they cater mainly to hedge funds and big traders, their weaknesses as a broker are poor customer service and their higher-than-ideal $10,000 minimum for trading accounts, and their somewhat confusing software. The biggest impediment withis the $10,000 minimum required to open a trading account with them, but apparently there is a loophole for people under the age of 26 where the minimum is $3,000…but I’m a bit older than that now so I haven’t gotten a chance to try it out for myself
In summary, the 2 best brokers for short selling for non-US residents are: Alliance ($1,000 minimum) and Interactive Brokers ($10,000 minimum).
I am not a financial advisor or professional, I’m just talking from my own experience so make sure you consult qualified and certified professionals before making investment decisions like opening a brokerage account. If you are a US resident like I am, I prefer US based FINRA approved brokerages like E*Trade (which I use).
Disclosure: I have anaccount. They have a US resident division and a non-US resident division. I do not currently have an Alliance trading account.