Stock Trading – Top 5 Best Online Brokers for Trading Stocks

RankNameCommissionsRatingMore Info
1OptionsHouseStocks: $3.95
Flat Rate
2Trade MonsterStocks: $7.50
Flat Rate
3OptionsXpressStock: $9.95
First 1,000 shares. Fast Execution
4TradeKingStocks: $4.95
Flat Rate
5Charles SchwabStock: $8.95
Flat Rate

What is Stock Trading?

Tired of earning nearly zero percent interest in a savings account? Then it may be time to start investing. The best place to start is by buying stocks. Stocks offer the simplest way to start investing whether your goal is wealth preservation, retirement savings, or aggressive growth. There are many strategies involved, but before getting started its important to learn just what a stock is.

What Stocks Represent
Shares of stock represent partial ownership of a corporation. While this is true of all companies, investors only really have to worry about the stocks of publicly traded companies. Publicly traded shares can be bought or sold on stock exchanges through the services of an online broker. Owning Stock gives the investor a right to vote in the annual elections of a corporation, and a right to a portion of the company’s profits in the form of dividends. Small investors don’t have to worry about elections, but dividends are an important part of investing. We’ll discuss dividends and other important factors involved in gauging the value of a stock later. Before all that, investors need to open a brokerage account.

How to Buy Stocks
Today’s computer and Internet technology makes it very easy for the average person to start trading stocks. There are dozens of online brokers competing for your business. The first hurdle new investors have to overcome is raising enough money to meet the minimum requirements of their chosen brokerage. Minimum balance requirements have come down significantly over the years, but anyone looking to get into stock trading should commit at least $1000. Opening an account at an online broker takes only a few minutes. The website will ask for your name, address and other identification information. Once the account is set up, the fastest way to transfer money into it is by ACH Wire Transfer from your bank account. Alternative methods include wire transfers (which carry small fees), or simply mailing a check to the brokerage.

Once the cash reaches the broker, it will be available for investing. There are several public stock exchanges in America including The New York Stock Exchange (NYSE), and NASDAQ which is composed mostly of technology related companies. Investors don’t need to know what exchange a stock trades on, they just need to know the stock symbol. Most brokers offer their customers in-depth tools to analyze stock charts and keep up with news for particular stocks, but the symbol for any stock can be gleaned even from large portals like Yahoo Finance or Google Finance. Simply enter ‘McDonalds’ into the search bar on one of these sites and you’ll learn that the symbol for the hamburger company is ‘MCD.’ Enter Coca-Cola and the symbol ‘KO’ will come up. The price of stocks is constantly changing as people buy and sell them. But investors won’t just pay the stock price when they decide to buy, they’ll also have to pay a commission on every trade. Stock brokers make their money by charging investors like you and me a small fee for every trade. If Coca-Cola shares are trading at $64 a share and I want to buy 10 shares, I will have to pay $640 plus the broker’s commission. Brokers charge anywhere from $4-20 per trade. At Online Brokers Hub, we’re here to help investors find the best stock broker. You can see which online brokers offer the lowest commissions, which offer the most features, and which one is the best match for you.

Taking Stock of Stocks
Before making your first investment, you should be familiar with some of the key characteristics of stocks.  Its important to note that a company with a high stock price isn’t necessarily ‘better’ than one with a low stock price. Remember, stocks represent partial ownership of a company. Novice investors should take care to purchase stocks of well know, profitable companies. The two simplest factors to consider are the dividend yield and the price to earnings ratio (commonly referred to as P/E.) Let’s use TD Bank as an example to explain what these terms mean. Using the tools our stock brokerage provides, or other financial websites, we can look up Tornoto-Dominion Bank (symbol TD) and see that it as an earnings per share (EPS) of $5.07. If we divide that by the current stock price, we get the P/E. Luckily, this division is done for us and displayed: its currently 14.38. That means that investors are willing to pay about 14x this year’s earnings for a share of TD. If a company is losing money, the P/E would be negative or simply not displayed. Generally speaking, a low P/E means investors are getting better value for their money. Popular technology stocks like Google (symbol GOOG) usually have high P/E ratios because investors are willing to pay a lot with the expectation that the company will grow and be worth more at a later date.

Dividends are the profits of a corporation that are paid out to its owners. If you own stock in a company, that makes you an owner entitled to a portion of the profits! If we go back to our TD Bank example, we see that it pays a dividend of 61 cents per share every three months. At the current stock price, that adds up to a 3.30% annual return. Sure beats the bank, doesn’t it? The  catch is that dividends are not set in stone. They are based on how well the company is doing, and whether the stock holders vote to approve a dividend. Some profitable companies never issue dividends because a majority of stock holders never agree to do so.

The Risks of Trading Stocks
There are dozens of factors and market conditions that effect the price of stocks. Historically, stocks have out performed the returns on savings accounts, bonds, and other fixed income assets, but they carry higher risk. There’s no guarantee that the stock you pick performs well, even if it has done so in the past. New technologies or competitors may make the company you invested in obsolete. Stocks tend to be more volatile and even profitable companies may see their stock price go down in the event of unforeseen events like a natural disaster or international conflict. There are ways for savvy investors to make money trading stocks in any climate, even in a scenario where the economy is falling. These advanced strategies are discussed in other articles. Investors new to stock trading should stick to basics, or may want to consider indexes and ETFs which track broad sectors of the economy, thus reducing the risks of being exposed to a single company.

Learn More About Trading Stocks