Is E-Trade the Best Online Broker for Beginners?

E-Trade is considered to be a safe online broker due to its long track record. See what our analysts suggest based on comparisons with other firms.

Ambrish Shah - Author

Jul. 29 2020, Updated 1:13 p.m. ET

how etrade works
Source: iStock

E-Trade is the oldest online brokerage service provider in the U.S. The firm had around 4.9 million brokerage accounts as of December 2018. E-Trade provides an electronic trading platform to trade financial assets like stocks, futures contracts, ETFs, mutual funds, options, and fixed-income investments. In February 2020, Morgan Stanley announced that it will acquire E-Trade for $13 billion. The deal will likely close in the fourth quarter after pending regulatory approvals.

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Creating an E-Trade account

A minimum initial deposit is not required to open an E-Trade account. The firm doesn’t charge any annual or inactivity fees. E-Trade’s retail commission rate is $0 for online US-listed ETFs, stocks, and options trades. For broker-assisted trades, customers are charged an additional $25. The firm has an options contract charge of $0.65. However, for active traders, the options contract charge is $0.50. At E-Trade, all customers receive free real-time streaming stock quotes called level I quotes.

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How does E-Trade make money?

With no commission or annual fee, how does E-Trade make money? The firm has various other ways of making money. E-Trade mainly earns by monetizing its order flow. E-Trade sends customers’ buy or sell orders to market makers for execution. In return, the firm receives compensation for the order flow. E-Trade also earns interest income whenever its margin customers borrow money to short stocks or buy stocks. The firm charges $19.99 to buy or sell a transaction-fee mutual fund. 

how etrade works in text
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Robinhood versus E-Trade

Founded in 1982, E-Trade is the oldest online brokerage firm. Robinhood, which was founded in 2013, is much newer. Both companies have equal fees for buying or selling stocks at $0 per trade. Also, they both charge $0 for trading options. E-Trade’s per option contract rate is $0.65, while Robinhood charges $0.

E-Trade offers more diversified investment products than Robinhood. E-Trade gives investors access to options, stocks, mutual funds, penny stocks, fixed income, and futures trading. Robinhood doesn’t offer mutual funds and bonds investment. Investors can use Robinhood to buy or sell penny stocks. While E-Trade offers banking services like savings accounts, checking accounts, and debit cards, Robinhood only offers debit cards.

Overall, E-Trade is a better online brokerage firm compared to Robinhood.

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TD Ameritrade versus E-Trade

Founded in 1971, TD Ameritrade is a well-known online brokerage. The company has been in business longer than E-Trade. TD Ameritrade is the best choice for beginners. The online brokerage offers educational videos and superior research reports across investment products like stocks, ETFs, options, mutual funds, and others. TD Ameritrade and E-Trade do not charge a fee for buying or selling stocks. Also, neither of the companies charge base fees. TD Ameritrade and E-Trade both have an options contract charge of $0.65.

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TD Ameritrade offers more diversified investment products than E-Trade. At TD Ameritrade, customers have access to options, equities, mutual funds, forex trading, and international trading. Looking at mutual funds, TD Ameritrade offers around 12,000 mutual fund schemes. In comparison, E-Trade offers about 9,000 mutual funds. TD Ameritrade offers banking services like checking accounts, credit cards, and debit cards. E-Trade doesn’t offer credit cards.

Overall, TD Ameritrade is a better online brokerage firm compared to E-Trade.


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