You don't need a phone line or an expensive human broker to trade stocks any longer. By opening an online brokerage account, investors can buy and sell individual stocks, options, ETFs and mutual funds with just a few clicks of their mouse, or taps on their mobile device. Well-known brokerages Fidelity and Interactive Brokers process millions of trades every month. Here's how the two stack up against one another on important factors for individual investors.
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Trading costs and commissions
Fidelity and Interactive Brokers give investors the ability to buy and sell a variety of investments at a very low price. Here's how much Fidelity and Interactive Brokers commissions compare to one another.
Source: Company websites.
Importantly, many brokers offer discounts to investors who complete more trades each month, or who opt for lower-cost trading services. The table above shows prices for Interactive Brokers' fixed commission schedule, but investors who choose its tiered commission schedule may pay less in commissions.
Low-volume traders might pay more to have an account with the Interactive Brokers than Fidelity, however. Interactive Brokers clients will pay $10 in any month in which their account generates less than $10 in commissions.
Commission-free ETFs and NTF Funds
Like funds? You're in luck! Fidelity and Interactive Brokers offer thousands of commission-free ETFs and NTF mutual funds that can be freely bought and sold without paying a transaction fee.
Source: Company websites.
Which funds are on a broker's commission-free or NTF list is perhaps more important than how many funds are fee-free. Fidelity offers the ability to trade its ETFs and many of iShares' ETFs without paying a commission. Interactive Brokers' ETF list is dominated by Global X ETFs, in addition to a handful of Cambria and O'Shares ETFs.
Getting started with a brokerage account at Fidelity and Interactive Brokers will require a little more capital than other brokerages. Fidelity will open a brokerage account with an initial deposit of at least $2,500. Interactive Brokers requires $10,000 to open an account, which is reduced to $5,000 for IRAs, and $3,000 for individuals who are 25 years old or younger. By the way, if you're in the market for brokerage account to house an IRA, see if your initial deposit qualifies you for special offers.
We like to take a long-term approach to investing. That means that we buy stocks we love, and try to hold them for a long time. It's the tax-efficient approach to investing, and it means that we don't trade all that much. As a result of The Motley Fool's buy-and-hold investing philosophy, we don't spend enough time with our brokerage accounts to really care about how the trading platform works.
Realistically, long-term investors can be happy with just about any trading platform, and there is plenty to like about the platforms that Fidelity and Interactive Brokers have to offer.For this reason, we'll let you make an individual decision here -- we really just care about placing trades, not how cool it looks when we do it.
Fidelity and Interactive Brokers are leaders in giving individual investors access to markets around the globe. Image source: Getty Images.
International stocks and ADRs
If you want to dabble in foreign markets, Fidelity and Interactive Brokers will let you trade direct on foreign stock exchanges. Fidelity routes trades to markets in 25 countries, but investors will pay a bigger commission for trades on foreign exchanges. If you want to invest in American Depositary Receipts (ADRs), Fidelity will allow you to trade those at its standard commission rate.
Interactive Brokers allows investors to trade on over 100 markets in 24 countries. Commissions are generally set to 0.05% to 0.10% of the trade value, although each trade is subject to a higher minimum commission than trades on domestic exchanges.
Research quality and tools
In general, investors who have access to more information can make more informed decisions about their investments, which we think is a good thing. Fidelity's brokerage customers can use screens to sort investments, read news from many of the leading newswires, and tap into upgrades and downgrades from more than 100 firms, just to name a few of its research capabilities.
Interactive Brokers has many of the same tools, plus a Daily Lineup of the top 10 news articles, Morningstar reports, and access to historical analyst ratings for individual stocks. Truthfully, investors can find plenty of research to supplement their own analysis at either broker.
Here's how each brokers' users and clients rated their mobile capabilities on iOS and Android (as of 12/05/2016).
Source: Relevant app stores.
Picking a broker for your portfolio
Depending on your personal needs, a brokerage account from Fidelity or Interactive Brokers could fill the needs of most long-term investors. Fidelity delivers with low minimums for opening an account, a long list of NTF funds and commission-free ETFs, and plenty of research to keep you filled in on what's happening in your portfolio. Interactive Brokers has cut rate commissions, access to numerous foreign markets, and a wealth of research and screening tools.
To be clear: The Motley Fool does not endorse any particular broker, but we do want you to make an educated decision before selecting a broker. See Fool.com's Broker Center for more information about the pros and cons of each brokerage, and how the top brokers compare to one another.
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Jordan Wathen owns shares of Interactive Brokers. The Motley Fool recommends Interactive Brokers. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.