Picking the best online brokerage for you doesn’t have to be overwhelming. In fact, getting your trading portfolio up and running online can be fairly simple, and often cheap. We’ll help you understand how to compare brokers and where to get started.
What to consider when comparing online brokers:
- Fees: all else equal, lower share dealing fees and lower platform fees are better. When you pay fewer fees, more of your money can help build your portfolio.
- Investment selection: it’s ideal that your share dealing account has a wide selection of investments to choose from. Even if you plan to invest simply, a wider selection ensures that you can find the most low-cost provider.
- Platform ease of use: look for platforms that are user-friendly and easy to navigate. You’ll want to be able to find information and place trades on the platforms quickly and easily.
- Extra features and benefits: online brokers can vary considerably on how many bells and whistles come with their platform. Especially for beginner investors, look for extra offerings like company data and analyst research.
With these four factors in mind, you’re ready to start looking for the best share dealing account for you.
The Motley Fool’s Featured Brokerages:
- Pros & Cons
- Fees & Charges
- Sign-up Offer
- Large choice of investing options
- Cheap fees and low commissions
- Mobile app and good trading tools
- Complex interface
- Encourages trading rather than investing
- Account funding must be by bank transfer
Monthly subscription fee: £0
Equities custody charge†: £0
Fund management charge†:
On the first £0 to £250,000 = 0.25%,
On the value between £250,000 to £1m = 0.15%,
On the value between £1m and £2m = 0.05%,
On the value over £2m = free
UK shares & ETFs: £2.95
US shares & ETFs: $3.95
EU shares & ETFs: €3.95
Fund trades: Free
Spot + FX fees: £0
Telephone dealing charge: N/A
Welcome offer: open your account using promo code TRD500-ML and during your first 3 months you can trade without incurring commission charges – up to a total commission amount of £500 (T&Cs apply)
- Pros & Cons
- Fees & Charges
- Straightforward pricing and fees
- One free trade each month
- Excellent platform and choice of investments
- Flat platform fee isn’t cheap for small investors
- Huge choice of investments can be overwhelming
- Limited trading tools
Monthly subscription fee: £9.99
Equities custody charge: Covered by subscription
Fund management charge: Covered by subscription
UK shares & ETFs: £7.99 (1 free trade per month included)
US shares & ETFs: £7.99
EU shares & ETFs: £19.99
Fund trades: £7.99
Spot + FX fees: 1.5%
Telephone dealing charge: £49
- Pros & Cons
- Fees & Charges
- Wide choice of investments and research material
- Good value for active investors
- Clear and functional platform
- Expensive commissions for infrequent investors
- Limited options for traders
- Complex fee structure
Monthly subscription fee: £0
Equities custody charge: £0
Fund management charge:
On the first £0 to £250,000 = 0.45%,
On the value between £250,000 to £1m = 0.25%,
On the value between £1m and £2m = 0.1%,
On the value over £2m = free
UK shares & ETFs: £11.95 (for 0-9 trades in previous month), £8.95 (for 10-19 trades in previous month), £5.95 (for 20+ trades in previous month)
US shares & ETFs: £11.95 (for 0-9 trades in previous month), £8.95 (for 10-19 trades in previous month), £5.95 (for 20+ trades in previous month)
EU shares & ETFs: £11.95 (for 0-9 trades in previous month), £8.95 (for 10-19 trades in previous month), £5.95 (for 20+ trades in previous month)
Fund trades: £0
Spot + FX fees: 1%
Telephone dealing charge: 1% of trade value (£20 min/£50 max)
- Pros & Cons
- Fees & Charges
- Good value share dealing for regular investors
- Huge choice of funds
- Easy for beginners
- Only access to UK-based investments
Monthly subscription fee†: £4 minimum (or 0.2% funds + 0.1% other investments up to £125 per month maximum)
Equities custody charge: 0.1%
Fund management charge: 0.2%
UK shares & ETFs: £6 (£1 for automated regular investments)
US shares & ETFs: N/A
EU shares & ETFs: N/A
Fund trades: £3 (£1 for automated regular investments)
Spot + FX fees: 1%
Telephone dealing charge: £25
Investments involve various risks, and you may get back less than you put in.
The value of your investments can go down as well as up and you may not get back all the money you put in. All investments carry a varying degree of risk and it’s important you understand the nature of these risks. The Motley Fool believes in building wealth through long-term investing and so we do not promote or encourage high-risk activities including day trading, CFDs, spread betting, cryptocurrencies, and forex. Click here to learn more.
What is a share dealing broker?
A share dealing broker is a company that facilitates the process of buying and selling shares for investors. And while humans are still often involved in the process, there are often computers matching the buyers and sellers.
In the past, we could say that brokers were the actual people that facilitated the buying and selling of shares. Today, it’s as often referring to a platform on which you buy and sell shares.
In short, when we talk about brokers, we’re talking about the companies and people that facilitate the buying and selling of shares. Simple as that.
Features of the best brokers
There’s no such thing as the best brokerage account, as what’s best for each person may look a little different. But when looking for the best broker for you, here are a few things to consider:
- Low trading fees: The less fees you pay, the more money you keep to build your portfolio. There are more than just trading fees to consider, but all else being equal, the best brokers have lower fees.
- Platform usability: It should be easy for beginners to navigate the platform, place trades, and manage their portfolio. Period.
- Investment selection: The best brokers have wide selections of investments to choose from, whether that be major UK companies, index funds, or foreign stocks.
- Extra features and analysis: Great brokers have extra features to help beginner investors, like stock screeners, company data, and sometimes even analyst research.
- Customer service: It’s essential to have good customer service for when you inevitably have to get in touch with someone. Whether that be mobile apps, online chat, or phone lines, frequent availability and quick response times are a must.
Understanding share dealing fees
There are several different share dealing fees, so it’s important to understand the nuances of each one. Note that you should always read the fine print of your brokerage account, as there may be additional fees that we’re not listing here. These are just the few main ones you should be aware of.
To see which provider has the lowest fees based on how you plan to invest, check out our Brokerage Calculator.
Sometimes this is called a ‘platform fee’, sometimes it’s a ‘monthly fee’ and sometimes it may be called something else, but the bottom line is that this is an ongoing fee that you have to pay to maintain your account. In some cases it’s paid monthly, while in others you pay once per quarter.
Trading fees (or dealing fees) are the fees you pay when you buy or sell shares. Most brokers charge a flat fee, but some charge a percentage of the trade value instead.
In some cases, brokers charge management fees if you hold funds (as opposed to just shares) in your portfolio. These charges vary more than most other fees you’ll face. So, if you plan to hold funds in your account, it’s a good idea to pay attention to these fees.
Overseas dealing charges
When you purchase shares of companies outside of the UK, there are often extra charges that come along with that. In some cases this is a currency conversion or FX fee (a percentage of your trade value), in other cases it’s a flat fee; and occasionally it’s a conversion fee plus an additional flat fee.
How have trading platforms in the UK changed over time?
The biggest change in trading platforms over the last few years is the move from full-service brokers to online brokers.
As mentioned, in the past, a broker might actually be a person that you’d go to — or call on the phone — for help buying or selling shares. And that broker would almost always charge you a very generous commission for those services.
Today, you can still find these ‘full-service brokers’. Though maybe not as comparably expensive as in the past, they’re still quite expensive. And they’re probably not terribly interested in working with you unless your account has seven digits or more.
One of the biggest changes in our lifetimes was the rise of online share dealing brokers. These are websites focused on enabling you to trade the shares you want, quickly, easily and at a much lower cost than the full-service brokers.
These days, most brokers offer competitive charges for a standard share trade. And while full-service brokers look for massive accounts, the minimums at online brokers are typically very low, if there’s a minimum at all.
This landscape continues to change and develop. As online share dealing brokers continue to grow, they’re offering more and more services that you’d previously only expect to find at a full-service broker. So, depending on how much assistance you need placing trades or researching shares, you may be able to find online brokers that offer a higher level of support.
Reasons to choose an online broker
For many investors, the cost of a full-service broker eats up most, all or even more-than-all of their investment gains. It simply doesn’t make sense.
The low fees of online share dealing make much more sense for investors without huge portfolios. Which, of course, isn’t to say that investors with massive portfolios shouldn’t use online brokers — after all, doesn’t everyone love saving money?
But, the appeal of an online brokerage account goes beyond the fact that the fees are much more attractive. Here are a few additional reasons that we like online brokers:
- Ease of use — Fancy making share trades in your pyjamas? With an online broker, you can simply turn on your computer — or, in many cases, your mobile — and you can quickly begin investing.
- Research — Not all online brokers offer research as part of their platform, but many do. And while it’s important to come to your own conclusions about your investments, getting additional insight from quality research can be helpful.
- Screeners and other tools — Whether you’ll have access to screeners and other investing tools varies from broker to broker. However, many online brokers (even those with the low commissions) do have tools that you can use to quickly narrow down the daunting number of companies into a simpler list for your research.
- Low account minimums — It’s not uncommon to find online brokers that have no account minimum. And those that do, tend to have low minimums. That means that you can start investing earlier in your financial life. And at least in the past, the earlier you started investing, the better off you were.
There’s no one-size-fits-all here. So, when choosing an investment platform, it’s important to consider your needs and not get hung up on an outside view of which broker is the ‘best’.
To do this, you’ll want to consider what is most important to you in a broker. The top online brokers have compelling offerings, but these offerings vary slightly and will advantage certain investors.
When making your choice, you should consider what kind of investor you are. Because, that can help match you up with one online investment account over another.
Here are a few examples of investor types and the kind of broker that they might match well with:
Brand new to investing
Beginner investors will probably want a balanced offering. Paying sky high commissions won’t be what you’re looking for, since you likely don’t have a very big portfolio. However, the stripped-down platforms with most ultra-low-cost brokers may prove bewildering to a new investor. A bigger name online broker with a balanced offering will also likely offer tools and research that can help a new investor start off on the right foot.
Steady fund-focused investor
This type of investor will want to look for an online stock broker that offers a broad selection of funds, and/or a good selection of low-fee funds. If you’re this kind of investor, you’ll also want to aim to steer clear of fund custody fees and inactivity fees.
Hardcore investing veteran
As someone with many years of experience, this kind of investor can typically leave aside extra research and a pretty interface in favour of dirt-cheap commissions. They still may want some screeners and other tools to help in their search for the very best shares. But, even the lowest-rate online brokers tend to have some tools for their customers.
Of course this doesn’t cover all of the possible types of investors. And even among these types, there may be crossovers. For instance, a hardcore investing veteran may be willing to pay a bit more in commission in order to have access to research. And perhaps there’s a brand new investor that’s not scared off by a complex-looking interface. But the bottom line is to understand what your needs are as an investor, and look for those features in your online broker.
The difference between investing and trading
We like to think of investing as a long-term approach to markets, buying and holding in order to build wealth over an extended period of time. Trading, on the other hand, typically refers to shorter-term strategies and higher-volume activities looking to maximise returns daily, weekly, or monthly.
At The Motley Fool, we believe that long-term investing is your best bet at building wealth over time. But those who want to focus more on short-term trading, or do a mix of both trading and investing, still have the option to choose online brokers or online trading platforms.
Online trading platforms
- Typically have lower fees because of higher levels of activity
- Often have access to more detailed information charts and data
- May require a certain number of trades per month
- Might have lower commissions for those who trade more than a certain number of times per month or quarter
- Less likely to allow you to trade currencies or futures
- More likely to offer research and stock-screening tools
If you’re new to investing or are an experienced investor looking to do a good amount of research, you’re better off sticking with a basic online broker. If you’re an experienced investor just using a broker for executing trades or simply wanting to trade in the short-term, an online trading platform is more likely a better fit for you.
How much money do I need to start investing?
If you’re new to investing in stocks, you might think that you need a large sum of money to open a share dealing account. These days, this simply isn’t the case.
Some online brokerage firms have minimum investments, but how much money you need to start investing depends more on what you invest in, where you open an account, and your personal preferences and financial circumstances.
Of course, the more you invest, the more you stand to gain – or lose. Before you decide how much you want to invest, it’s important to evaluate the health of your entire financial picture. And, your willingness to potentially lock your money away for a number of years, or lose it entirely.
How to buy shares online
In order to buy shares, you’ll need a share dealing account. This is where you’ll buy, sell and hold your shares. Once you’re set up with a share dealing account, you need to decide which shares you want to buy.
Once you’ve decided on the shares to buy, you will place the trade through your share dealing service. You’ll be alerted by your broker when that order has been ‘filled’ and the shares will appear in your portfolio.
For a highly-traded share that you buy with a ‘market order’, completing the trade could happen in a fraction of a second. While a ‘limit order’ on a thinly-traded share could take hours to complete.
While becoming a good investor takes patience, study and practice, buying the shares isn’t terribly complicated at all. Looking for more help? Check out this step-by-step breakdown of how to buy shares.
How many shares of stock should a beginner buy?
Firstly, at The Motley Fool, we believe that it’s wise to invest money for at least five years, since we’re long-term investors. This means that we continue to look for investment opportunities both when the stock market drops, as well as when it’s riding high.
When it comes to how many shares to buy in a company, well, that depends on many factors including the value of each share, since this differs dramatically across the spectrum. Some shares are priced by pennies, whereas others could be thousands of pounds. Certain platforms allow you to buy ‘fractional shares’ which means you don’t have to buy whole shares when investing.
What should a beginner know about starting to invest with little money?
When you’re investing with a small amount, it’s even more important to pay low fees and commissions. Otherwise, making the investment could be so expensive that you need a decent return just to cover your costs.
Fractional shares from some online brokerages can also allow you to purchase a piece of a share in a company, potentially meaning you can invest with a smaller amount.
Why you can trust us to compare online brokers
Here at The Motley Fool, we aim to do right by you. We’re looking for the best financial products, and we try to lay out the pros and the cons of those products for you in plain English.
The financial world can often seem dark and tangled, so our hope is to help shed some light and untangle it. As a company, we’ve been doing this for more than two decades, in the UK, the US, Australia, Germany, and beyond.
When our work can help make someone’s financial life just a bit easier or richer, we consider that a job well done.
Investing in the stock market: for experts only?
One concern that new investors may have is that investing in the stock market is only for professionals. Make no mistake about it: investing in the stock market puts your money at risk, and you can lose money. Full stop.
So, why bother trading stocks at all? The answer is that in exchange for putting their money at risk, stock market investors in past years have been rewarded with returns that have often bested other types of investments.
The trick then, is to understand how to buy shares and trade stocks with less risk. And indeed there are some things you can do when buying shares that will make it less likely that you’ll lose a large portion, or all of your money. Here are a few tips that could help:
- Avoid higher-risk trading – Not all online trading is equally risky. Trading penny stocks, CFD trading, forex trading, spread betting, and day trading are all forms of higher-risk trading. We won’t delve right now into when and whether these are appropriate, but if you’re a beginner, these will be far riskier for you.
- Think long-term – Day trading tends to be just that – trading that jumps in and out of stocks in a day or less. Often when people speak of a ‘stock trader’, they’re referring to someone trading stocks over relatively short periods. Investing for the long-term can reduce risk and improve returns. This is because investing for the long-term can help ‘smooth out’ price swings in the stock market and help you take advantage of compounding returns.
- Consider a mutual fund, index tracker or ETF instead of individual stocks – Individual stocks can be great investments, but your entire investment rides on the success (or failure) of that one company. By investing in a mutual fund, index tracker or ETF (exchange-traded fund) you instantly diversify your investment, thereby reducing your overall risk.
- Buy shares that you understand – Each share of stock represents ownership in a real company. Investing successfully means understanding what you’re investing in and why. There are thousands of companies listed on the London Stock Exchange (LSE), and thousands more on stock exchanges around the world. That means plenty to choose from. When you’re just starting out and buying shares, why not choose companies that you already understand? That could mean companies you already do business with, or it could mean firms you’re familiar with through your job or profession.
- Limit how much you invest – I’ve saved this for last, since, when it comes to lowering risk, this may be the most important stock trading tip of all. When you’re buying shares online, you can only lose what you invest. So, if you invest less, you have the potential to lose less. The opposite is true as well. That is, when you invest less money, you stand to profit less from your investing. But when you’re just learning, this is a great way to reduce risk.
There are major benefits from investing in stocks. But, it is very possible to lose money. So, it’s important that you make the time ‘investment’ to learn about investing, how to invest well, and how to limit your risk – especially when you’re starting out.
Learn more about share dealing
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The short answer is: low fees, a wide selection of investments, an easy-to-use trading platform, and good investment research and tools.
The slightly longer answer is that you should find a balance among those elements to find a platform that fits your needs.
Start by considering your needs as an investor. If you're brand new to investing, for example, you may want to choose a broker that offers a simple-to-use site and plenty of investment research to buy and sell shares. If you're more experienced, you could prioritise simply choosing the broker that keeps your fees the lowest.
In order to buy shares, you'll need a share dealing account. This is where you'll buy, sell and hold your shares. Once you're set up with a share dealing account, you need to decide which shares you want to buy (how to do that requires a much longer answer!). Once you've decided on the shares to buy, you will place the trade through your share dealing service. Looking for more help? Check out this guide to learn more about online share dealing.
There’s no one-size-fits-all here, so when choosing an online broker, it’s important to consider your needs and not get hung up with an outside view of which broker is the ‘best’ (yes, even if that’s our ‘best’!).
To do this, you’ll want to consider what is most important to you in your broker. The top online brokers have compelling offerings, but these offerings vary slightly and will advantage certain investors. To make the best choice, it may help to consider what kind of investor you are, since that can help match you up with one online investment account or another.