Before you can make an investment, you'll need to open up a brokerage account. But picking a broker can be a challenge, particularly since there are so many online discount brokers on the market today. Let's take a look at just two brokers, Capital One and TradeStation, to see how they compare on features that matter most to long-term investors.
Trading costs and commissions
Trading costs aren't everything, but you should take them into consideration before opening an account. Capital One and TradeStation both charge less than $10 for most trades, putting them squarely in the lineup of some of the least expensive discount brokerages.
Source: Company websites.
We should point out that the table above reflects standard commission prices, and it's very likely that average trading costs actually come in lower for several reasons. First, many brokers have investments that you can buy or sell for free. Second, we'd encourage you to see if you qualify for special offers for traditional brokerage accounts, or bonus offers for IRAs, which can significantly reduce your average trading cost.
Finally, both brokers offer less expensive trading methods. Capital One clients can use its Sharebuilder program to make trades for as little as $3.95, or use its PortfolioBuilder option to buy a portfolio of stocks, ETFs, and mutual funds in one go at a flat price of $18.95. TradeStation provides volume-based discounts for high-activity investors and traders.
Commission-free ETFs and NTF Funds
Some brokerages compete for investors by providing commission-free ETF trades and no-transaction-fee (NTF) investments in mutual funds. Here's how these two brokers stack up here.
Source: Company websites.
Importantly, what matters most is which funds are free. Although Capital One has more no-transaction-fee mutual funds, it isn't much of a benefit if your favorite funds aren't on its list. Furthermore, note that although TradeStation doesn't offer any transaction-fee-free funds, it does have lower mutual fund transaction fees than Capital One.
Minimum initial deposits may be an important consideration, given the differences between these two brokers. Capital One is a no-minimum brokerage, so you can open an account with whatever balance you deem appropriate. TradeStation requires an initial minimum deposit of at least $5,000 for ordinary brokerage accounts, which is increased to $5,500 for IRA accounts.
As long-term investors, we at The Motley Fool generally think that any trading platform that can handle the occasional trade is suitable for our needs. We simply don't trade much, and consider ourselves investors rather than traders. For this reason, we don't need a complex platform.
Depending on your needs, either brokerage could suit you well. We'd encourage you to take either platform for a test drive if a platform is important to you. If not, well -- forget we mentioned it.
Mobile trading applications from Capital One and TradeStation bring robust platforms to mobile devices like phones and tablets. Image source: Getty Images.
International stocks and ADRs
Most discount brokers have some limitations on their clients' abilities to invest in foreign companies. Capital One and Tradestation aren't exceptions to this rule. Let's dig deeper.
Source: Company websites.
Both companies enable you to buy American Depositary Receipts (ADRs), which trade on U.S. markets, but represent ownership in a foreign company. You'll find that many foreign large caps (think household names) have a listing in the United States.
Furthermore, if funds are your thing, both brokers also enable you to trade American ETFs and mutual funds that invest in foreign stocks. However, neither brokerage currently offers the ability to trade stocks on international stock markets. You won't be able to place trades on the London Stock Exchange, for example.
Research quality and tools
We tend to think that having access to additional research through a brokerage account is a good thing. Both Capital One and TradeStation provide some level of free research and tools to their customers. Capital One provides access to a number of stock screeners, in addition to high-level research for individual stocks with a back end that's powered by Morningstar data. TradeStation also provides a wealth of screening tools in addition to its pre-market briefings, and stock and ETF reports are published each week. Realistically, we've only skimmed the surface of what both brokers have to offer, but long-term investors should find that there's a lot to like at either brokerage.
If you own an electronic device that can get online, then you can trade. In addition to desktop or browser trading platforms, both brokerages also offer mobile app trading. Here's how each broker's users and clients rated their iOS and Android apps (as of 12/19/2016).
Source: Relevant app stores.
How Capital One and TradeStation compare
On one hand, Capital One offers lower commission prices for infrequent traders, doesn't require an initial minimum deposit, and has more fee-free funds for investors who don't have particular favorites. On the other hand, TradeStation's volume discounts may appeal to more active traders, while its lower mutual fund transaction fees may win over fund investors whose favorite funds aren't free at other brokers.
It pays to be realistic. There simply isn't a one-size-fits-all brokerage account, although we certainly wish there were. To be clear: The Motley Fool does not endorse any particular broker, but we can help you pick what works best for your specific needs. Be sure to visit Fool.com's Broker Center or IRA Center to compare several leading discount brokers in one place. Both pages are frequently updated with the best special offers, which frequently include commission-free trades and cash bonuses worth thousands of dollars.
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