Full-service or online?

The choice between a full-service and an online broker depends in large part on the complexity of the trading you plan to do, your level of experience, and the amount of time you prefer to spend managing your money.

Almost any online discount brokerage — and all of those named below — easily handle trades of U.S. exchange-listed stocks. In general, commissions will be significantly lower with an online broker. Most will also have a knowledgeable agent who can help you with a complex trade or dig up shares to sell short. Many investors just prefer controlling the entire trading process themselves online and having the ability to place trades whenever they want.

Until recently, most online providers made it very difficult or impossible to trade Canadian and other foreign stocks. But that situation is quickly changing. Below you will find a list of the best-of-breed online brokers from the perspective of Casey Research: those with low commissions, easy-to-use tools, and great international trading support.

Note that most online brokers won't be able to support warrants or physical certificates. And for many thinly traded stocks, just because you can trade them online doesn't mean you should. If you know an online broker is right for you, jump straight to the online broker recommendations.

For many investors, a full-service broker provides the convenience and security of knowing a professional is handling your trades and that they will help you get the best price and avoid common mistakes.

For larger accounts with lots of positions, especially in thinly traded stocks, or for anyone who will be dealing with warrants or private placements (which are actively tracked in our alert services), we highly recommend using a full-service broker. The more money you have on the table, the more important it is that you work with a broker who will give you good advice and buy and sell at the best time, at the best terms. At Casey Research we've worked with many full-service brokers over the years, and below you'll find a list of our favorites.

So, which to use: full-service or online? For most investors, a combination is usually the best way to go. Take advantage of instant access and low fees to make small trades of thin stocks or to buy and sell larger-volume investments online. Turn to a full-service broker for thinly traded stocks or more complex transactions.

Below are our impartial recommendations, based on the collective experience of our staff and colleagues. Neither Casey Research nor its employees receive fees, commissions, or remuneration of any kind as a result of providing these recommendations.

Full-service brokers in the U.S.

The Casey Research editors and staff have worked with many full-service brokers over the years and can recommend those below without reservation. Both Rick Rule and Ben Johnson are longtime friends of Casey Research and are frequent presenters at Casey Summits.

Canadian full-service firms that serve U.S. investors

For Canadian and other non-U.S. investors

Online Brokers

Generally speaking, with an online account you'll pay lower fees and commissions than you would on similar trades transacted at a full-service firm. Paying lower commissions is especially important for those who are not starting with a large dollar amount or who are active traders.

If you're a do-it-yourselfer, a good online brokerage will give you all the tools you need to do your own research, as well as the ability to place orders whenever you choose.

If you plan to trade Canadian stocks, you want to be certain that you'll be buying actual Canadian stock on the Toronto Stock Exchange. Thi s is not as straightforward as it may seem.

Many online brokers don't trade directly on the TSX, but instead trade in proxies for the actual stock in the form of over-the-counter ADRs, ORDs, or "pink sheets" –identified by a five-letter stock symbol. This is not the actual Canadian stock, and you should approach pink sheets with great caution. Although the pink sheet might be a 1:1 proxy for the Canadian stock, it is an instrument that trades over the counter in the US. As a result, its trading volume is likely to be far lower than it is on the Canadian exchange, and therefore less liquid when the time comes to sell. (There are times – rarely – when our services may recommend trading an ADR instead of the native exchange. In those cases our editors will be very specific as to why.)

To read more about stock symbols and how to tell a pink-sheet proxy from the real Canadian stock, please see The Casey Research Guide to Investing in Canadian Stocks.

The situation is complicated by the fact that some brokers (PennTrade and Schwab among them) do in fact execute trades of Canadian stocks on the TSX, but those shares are represented on their statements with a five-letter trading symbol and in US dollars. The reason, they say, is to ensure that every stock – regardless of where in the world it trades – has a unique symbol associated with it. When one considers that the symbol "CAT" represents Chimata Gold Corporation on the TSX and Caterpillar Inc. on the NYSE, one can understand the problem. However, any broker that does not treat non-US stocks as first-class citizens is behind the times if you ask us, and their customer service for such transactions is likely to reflect that attitude.

We recommend choosing a broker that is able to trade a Canadian stock on the TSX, using only the Canadian symbol for the stock. Being able to do so removes any doubt about what you own and where it will trade. So, for those brokers in our survey that do not do this, we must deduct a few points.

If you are going to be trading Canadian stocks, there are just a few questions that need to be answered to make sure you're with the right broker:

1.     Can I buy and sell the Canadian stock directly on the TSX?

This is the minimum basic requirement: the ability to buy the Canadian stock on the Toronto Stock Exchange.

2.     Can I do so online, without a broker involved?

Some firms will make you call in a foreign trade on the phone and charge you broker fees, especially if there is an over-the-counter alternative available.

3.     Can I choose to settle in either Canadian or US dollars?

You should be able to choose whether the stock is shown in US or Canadian dollars.

4.     Can currency automatically be converted to and from Canadian dollars?

Not important if you don't mind keeping some Canadian currency in cash in your account, but very convenient if you want to stick to US dollars.

5.     If a stock is traded on both the TSX and US over the counter (OTC), am I forced to buy OTC?

You want the choice to be yours, not theirs. If you're forced to buy the OTC for a dual-listed stock, we'd look elsewhere.

6.     Can I trade on the TSX within an IRA?

This is a deal maker or deal breaker for many.
 

Here's how seven prominent online brokers we surveyed compare:

Fidelity

Fidelity satisfies all of our requirements for Canadian trading except the ability to trade foreign stocks within an IRA. With its perfectly decent interface and reasonable commissions and currency exchange rates, it may be the best choice for many investors looking to trade on foreign exchanges. You can trade directly on 12 major foreign exchanges.

Your account must be approved for international trading, which requires either 120+ trades per year plus $25,000 in household assets, or $1 million in household assets with no trade minimums. These requirements, in fact, are highly negotiable.

Funds to execute a trade can automatically be converted from $US to $CA, and automatically converted back to $US when you sell. Alternatively, you can manually convert the currency and hold foreign currency in your account. The currency conversion fee is 1% each way – half that of ETrade. Online trade commission is normally $19 for Canadian trades, but you should ask for the regular $7.95 commission. You'll probably get it with a decent-size account.

Fidelity does have a couple of drawbacks. You can't execute foreign trades within an IRA. If that's a requirement, Schwab, Interactive Brokers, or PennTrade may be your only choices. And you can't make good-till-canceled orders on foreign trades, which makes placing "stink bids" problematic.

One interesting feature of Fidelity is that you can buy physical metal – gold, silver, platinum, and palladium – online through an "unaffiliated" partner called FideliTrade. You can have the metals shipped to you or stored by FideliTrade.

All in all, Fidelity offers the best of all worlds for most investors who want exposure to foreign stocks – especially if you want to keep everything under as few roofs as possible. Unless you must do your Canadian trading from your IRA, Fidelity is our broker of choice.

Interactive Brokers

Interactive is an industrial-strength online broker and one of the most popular among active traders and investors. There's not much you can't trade online, and you'll be able to trade in 80 different markets in 19 countries. Six of them are in Canada – TSX and TSXV among them, of course. On top of that, IB has by far the lowest commission rates of any online broker we know of. And you can trade within an IRA.

For some investors, there's little or no downside to IB. Those investors will be experienced traders who can take advantage of what Interactive Brokers has to offer. They also won't be intimidated by a no-nonsense interface and very limited support. If that describes you, and you feel that your knowledge of trading is well above average, give IB a look. It's the only online broker that passes all six of our criteria. You can try out the interface with an interactive demo on the IB site.

PennTrade

You can trade all kinds of stocks on both the Canadian and US exchanges at PennTrade. Your Canadian trades will be on the TSX, but you'll see your stocks on your statement represented by a five-letter trading symbol, in $US, for the reasons described above.

This is an interesting company. They're located in Idaho, and they've been in business for 85 years. When you call them, a live human being answers the phone. Customer service, from all appearances and reports, is excellent.

But that good service comes with a price. Their commission is $29.95 per transaction; every 10th trade is free, so it averages $27. Their Canadian market makers charge an additional 1.25% commission, capped at 2¢ per share. Currency exchange is made when the transaction takes place at the current nominal rate plus a 10-point ($.001) spread.

You can trade within an IRA, and you can place good-till-canceled orders. You can also place a limit order expressed in either US or Canadian dollars.

PennTrade does cost more, but if you're willing to pay a little more for certainty of the trade and for good service, they may be a perfect fit.

Schwab

Like PennTrade, Schwab does trade on the TSX, and represents your stock on their statements with a five-letter code. However, if the stock is listed on both the TSX and over the counter, they will route the order wherever they – and you – get the best price. You have no control over that decision.

Unlike most others, Schwab does let you trade internationally within your IRA. If that's important to you, Schwab may be your best choice for an online broker.

If you currently trade with Schwab, you certainly should check a few trades before deciding to move your cookies elsewhere.

ETrade

With an ETrade account, you can trade directly on the TSX and several other foreign exchanges. To establish international trading, you must open a "Global Trading Account," to which you move funds from a regular account (you must have both). In the Global account, you can then convert US dollars to one or more of a variety of currencies and trade directly on foreign exchanges. You absolutely hold the Canadian stock, and you own it in Canadian dollars. It's clean and certain. That's the good news.

The bad news is that you pay a 2% currency commission every time you exchange into and out of a foreign currency. It stays in whatever currency you bought until you exchange it back to $US, which makes it easy to hold foreign currency in your account. But it's an expensive way to convert. Furthermore, ETrade will not allow good-till-canceled orders on foreign trades. And you may not open a Global Trading account within an IRA.

Our biggest problem with ETrade, apart from those given above, is its inexcusably bad interface: it's cumbersome, unintuitive, and difficult to use. This of course could change any time, but it's a significant detriment right now.

Unless you already have an account at ETrade or find something about ETrade that especially appeals to you, there is little reason to choose it, in our opinion.

Scottrade

If trading Canadian shares is in your game plan, Scottrade is not the place to be. You cannot trade on the TSX. All international trades at Scottrade are ordinarily in the form of ADRs (American Depository Receipts) or ORDs (Ordinary Shares), and traded on US exchanges.

Scottrade does offer good-till-canceled foreign orders, good customer service, IRA trading for foreign stocks, and cheap prices.

There's a lot to like about Scottrade, but it's not a place to trade on the Toronto Stock exchange

TD Ameritrade

With deep roots in Canada (the TD stands for Toronto Dominion) you'd think TD Ameritrade would be among the best for trading on the TSX. Not so. TD Ameritrade does not trade on the TSX or any other foreign exchange. For foreign stocks, they trade ORDs, ADRs, or pink sheets only.

So while TD Ameritrade has a lot going for it for some purposes, foreign trading is not among them. If it's the TSX you want, you'll have to look elsewhere.