Compare online stock brokers

When choosing from all the top-rated online brokers, there are several factors you can take into account. If you simply pick the cheapest, you might have to compromise on trading platform features. The main factors to consider are your risk tolerance, initial capital and how much you will trade. In particular, look at the fee structure, minimum account balance, option for fractional shares, and selection of derivatives. One key consideration when comparing online brokers is that of regulation.

How do online stock brokers make money?

Many brokers follow an OTC business model. Essentially, an OTC broker will act as your counterpart. They will take the opposing side of your position. As a result, you don’t have to pay a commission or fees in the same way. You are simply trading against the broker. The best OTC futures or CFDs brokers, for example, may have both sides of the trade covered, promising a handsome margin.

Some other brokers are also ‘market makers’. The market maker model act as wholesalers, buying and selling to meet the needs of the market. They set the bid price marginally lower than listed prices while setting the ask price slightly higher. That tiny margin is where they will make their money. Without market makers, finding buyers and sellers may take longer. As a result, liquidity may drop and you may pay higher fees as entering and exiting positions becomes harder. A market maker will make money regardless of the outcome of your trade. Whereas an OTC broker has a vested interest in you losing out.