Guide to Changing Your Online Stock Broker

So you don’t like your current stock broker and you want to change, what do you do? You need to figure out who you want to switch to, why you want to switch, and what benefits you will attain from switching. The good thing is that the process of switching brokers is actually a very simple and painless process.

Reader Question

Goke sent me the following email recently,

“Hello Blain,I must give you a big thumbs up for the excellent work you are doing with your various posting, trying to help the “little guy” get up the learning curve. Excellent work!Please I need your help/advice.
I presently have an account with sharebuilder that I opened about 2 years ago, and was involved in automatic investing, which made the $4 per trade (charged by Sharebuilder) worthwhile, however, now I am learning and beginning to move into more frequent trades, and the $15.95/per trade commission seems on the high side (judging by your post on online brokers). So the help/advice I am seeking is, what would be the best way to transfer (if possible) to a different broker? And which would be the best for an account for ~$30000 -$40000 portfolio? I anticipate to do about 1-3 trades/week.
Thanks for the help!

Regards,
Goke”

Choosing the Right Stock Broker

Thanks for the kind words Goke! First thing is first, which broker do we go with here? We know the following from Goke’s situation:

  • He has $30,000 -$40,000
  • He will be trading an estimated 1 – 3 times a week
  • He wants to lower his commissions from the $15.95 he is currently paying at ShareBuilder

Real quick, for those who may be confused about Sharebuilder charging $15.95 per trade, it is simply because Goke is trading more than their plan requires. ShareBuilder is all about automatic investing. They want to do the work for you by purchasing stocks, mutual funds, etc. each and every month straight out of your paycheck. It is a fantastic way to go if you want simplicity and to be hands off, but for the active trader it ends up biting you commission wise because you won’t get to pay the cheap $4 trade fees once you pass a certain threshhold.

Active Trading

With that aside, Goke is either going to want to transfer to TD Ameritrade, Etrade, or Scottrade. Trading 1 to 3 times a week estimated puts Goke over the passive trader line but only in a low active trader arena. Some traders will make 10+ trades a day and really define “active trader”. Why does this matter? Well, for the power active trader you are going to end up at Etrade.

Result: For active trading Etrade is a great contender.

Flat Fee Trades

We are now left with TD Ameritrade and Scottrade, and what I want to make sure Goke gets wherever he decides to move to are flat fee trades. This is extremely important because we have already seen how ShareBuilder charges $15,95 if you trade too much. With TD Ameritrade and Scottrade, you can trade however much you want, whenever you want, for the same price (Note: Scottrade does charge an additional fee for penny stocks). Even with this additional charge which is very rare, both TD Ameritrade and Scottrade qualify under my viewpoint as flat fee trade brokers.

Result: Advantage TD Ameritrade

Elite vs Apex Status

The next thing to consider is how we can maximize our account status. Scottrade has Scottrade Elite, and TD Ameritrade has Apex (which I use). With Gokes portfolio size, he can qualify for Scottrade Elite status which only requires a minimum balance of $25,000 whereas Ameritrade Apex requires $100,000 to get in the door. Now, you can also attain these statuses by making x number of trades per month for three consecutive months.

Result: Advantage Neither

Trade Commissions

The final topic to consider are the trade commissions Goke will be paying at his new online stock broker. With flat fee trades, you only need to look at one number, not a range:

Either way Goke is going to be benefiting significantly over the $15.95 he is currently paying at ShareBuilder, but Scottrade still has the lower commissions. (just to note here, this is for any trade types: market orders, limit orders, stop order, etc.)

Result: Advantage Scottrade

Other Factors

What we did not look into were factors such as customer service, free trading tools, research, trade speed (measured in miliseconds), account fees, etc. These can be extremely important to the right person, but in this situation Goke isn’t focused on these factors.

Result: Unknown / Not Considered

Final Results

Based on the above, I would recommend Goke make the change to Scottrade from his current account with ShareBuilder. Scottrade will benefit him the most with his current circumstance, and offer him a huge advantage across the board over current broker ShareBuilder.

Making the Change

Changing your online stock broker is actually a very simple a painless process, and in fact most brokers will guide you right through it. With any of the brokers mentioned above you can fill out all your paperwork online which is the best way to go, and even fund your accounts right there on the spot. I am not positive on this, but I am pretty sure you can also transfer positions you currently hold from one broker to another.

Most of the time this process start to finish is literally just clicking and opening a new account and filling out an extra few bubbles. If you get caught up just call up their service center and I am sure someone will be more than willing to help you out. After all, they are getting business directly from the competitor!

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