Choosing the appropriate discount brokerage house for you investing/trading needs is next to impossible. The only practical way to narrow down your choices is to apply some strict filters. The first few questions to ask yourself might include:

• Is this for an IRA account?
  • This should be the first question to ask. Your activity and strategy may differ significantly in an IRA account, and the type of broker that is a perfect fit for your taxable account(s) could very well be the worst choice for your IRA.
  • Typically, IRA accounts are assessed an annual fee, and if you terminate your IRA account, there is generally an additional fee. Also, different brokerages have different rules regarding what products and combinations IRA accounts are allowed to trade.
  • Think or Swim and TradeKing are two brokerages that do not charge annual IRA fees.
  • Rule of Thumb: Is the IRA annual fee greater than the amount of commissions you expect to pay for the year? For example, TradeKing has no annual fee, but costs $4.95 per trade (+$0.65 per option contract). MB Trading on the other hand has a $35 annual fee, but most of the equity and option trades I would perform would cost no more than $1 per trade ($0.01 per share on equities, $1 per option contract). Assuming 3 trades per month, MB Trading quickly wins out at $71 a year, while TradeKing would cost ~$178 a year. However, if you are only going to be making 7 trades a year, TradeKing would be less expensive at $34.65 a year vs. MB Trading's $42/year. If you're going to be doing only 1 or 2 trades a year, the clear winner emerges.
• What size of account are you going to open?
  • You might like Interactive Brokers for their dirt-cheap fees, but do you have $10,000 for the minimum opening deposit?
• What products do you wish to trade?
  • Equities, Currencies, Futures, Stock Options, Futures Options, Single Stock Futures?

  • If all you want to do is trade equities long and short in blocks greater than a few hundred shares, your best bet is SogoTrade with flat $3 commissions up to 5000 shares. (you can also get $1.50 trades with a $10 30-day subscription) However, despite these excellent prices they do not offer any other products.
• What position sizes do you wish to trade?
  • many brokers operate on a per-share or per-contract commission basis, and give discounts for volume
• How is your broker going to accommodate your data/analysis needs?
  • Interface to a third-party tool vendor? Who or what is managing your data subscriptions?
• How active will you be in trading?
  • Interactive Brokers will waive all monthly data fees if you do >$30 worth of business in commissions with them each month, but requires that you spend a minimum $10 each month in trading fees otherwise
• Are you interested in OTC/Pink sheet trading?
  • Personally, the shark-infested waters of NASDAQ small caps are as close as I want to get to OTC.
• Do you prefer a software-based system? Do you need a direct access brokerage?
• How easy is it to close an account if you are not satisfied?
  • This is probably the hardest question to answer by analyzing a brokerage's promotional materials.
• Do they offer a money market sweep?
  • This is 100% essential if you intend to keep sizable cash positions in your portfolio. Although Interactive Brokers and SogoTrade have very deeply discounted commissions, they do not offer a money market sweep option and give extremely anemic interest rates on spare cash - if you get a whole percentage point on your spare cash without a sweep, you're doing pretty good.

  • I find this to be a particularly important feature for someone just starting a self-directed IRA account. This allows them to pool cash in their account that will earn interest while they wait for an advantageous time to buy shares (i.e. when the percentage of the cash pool paid in commission on a trade is low enough to justify the activity). In this manner they can painlessly add to their account week-to-week or month-to-month with small contributions, but avoid the transaction-cost inefficiency of attempting to dollar-cost-average with each new cash infusion.

The choices for taxable accounts mostly have to do with your unique needs, but it seems to me that an IRA choice is mainly focused around cost reduction. So what are your goals?

IRA possibilities

1. Limited starting capital (<$2000), low activity (<5 trades a year), equities only

I highly recommend TradeKing in this situation. No annual fee, no minimums, and a default money market sweep. It also leaves open the possibility of a hedged portfolio when the account has more capital.

2.Somewhat higher starting capital (~$5000), hedged portfolio (equities and options), 3-4 trades a month

I would most likely recommend MB Trading to this person. They have an excellent offering of money market sweep funds and very reasonable per share and per contract commissions that more than make up for the $35 annual IRA fee as compared to a brokerage like TradeKing or Zecco.

3. Starting capital >$2500, equities only, strong desire to dollar cost average, possible use of options, 10+ trades a year

If you have limited capital, but more than $2500, and you really, really want to dollar cost average in an efficient manner, Zecco is the brokerage for you. As long you have >$2500 minimum account equity they will give you 10 free equity trades each month. Options will cost you however, which is why I would likely not recommend this broker to someone that wishes to pursue a more complicated/hedged strategy. For the pleasure of 10 gratis trades a month, you will pay a $30 annual fee, which is very reasonable. Zecco also offers a money market sweep option, but since you don't really have to worry about transaction cost inefficiency, it becomes less important. As long as you have enough money in your account to buy a single share of something, you're good to go!

Just some thoughts, researching these guys is a pain! Baskin-Robbins has nothing on brokerage houses.