Success in the market often comes down to having a trading plan and, more importantly, executing that plan. It's no wonder that of the 18 attributes surveyed for IBD's 2023 Best Online Broker report, investors placed a high importance on the execution of trades and the best trading platform.
Investors scored those attributes first and third, respectively, in the first phase of the survey.
Why is trade execution/speed/price the No. 1 attribute among our survey respondents? A trade executed slowly or poorly bleeds money. And getting the best price? Everyone wants to know they got the best price and didn't pay more than the other guy. But knowing what that best price is, that's a murky story.
As for the best trading platform, think of it like the control panel of a cockpit. David Keller, chief market strategist at Stockcharts.com, is a student pilot and finds a lot of similarities between flying and investing: "As a pilot, you have checklists and routines that make decisions more automatic rather than emotional."
Investors need easy-to-see data and readily available tools on their trading platforms. A great platform gives traders situational awareness of where they are in their investing. It can lead to more successful outcomes too.
Best Trading Platform: TD Ameritrade
For the fourth consecutive year, TD Ameritrade scored as the best trading platform (it tied with Fidelity and Charles Schwab in 2019). Its robust Thinkorswim platform, acquired in 2009, often gets credit for its tools and versatility. And TD Ameritrade secured a spot in the top three best trading platforms in nine of the last 10 years. Not a big surprise that it came in on top again in 2023.
But where were the surprises? Fidelity and Charles Schwab had also dominated the top three best trading platforms in the last 10 years. But they didn't make the cut this year. They came in fourth and fifth, respectively.
However, since closing its acquisition of TD Ameritrade in October 2020, Schwab now owns Thinkorswim.
Which broker edged out Schwab and Fidelity? E-Trade. It made it into the top four last year and jumped to the No. 2 spot this year. Its E-Trade and Power E-Trade platforms are free for all customers. The latter caters more to active investors. E-Trade acquired OptionsHouse in 2016, which helped make the Power E-Trade platform possible.
Morgan Stanley closed its acquisition of E-Trade in Oct. 2020. And MS has continued to invest in the E-Trade platforms — they received another round of enhancements in December. More changes are planned in 2023.
Best Trading Platform: What Made Vanguard Score Well?
One interesting change in this year's survey was Vanguard's move into No. 3 in the best equity trading platform category. Wall Street experts see Vanguard as the home of retired and long-term investors. It's never stood out before for its trading platform.
"Our platform best supports long-term investing and is intentionally not built for frequent trading," James Martielli, Vanguard's head of investing and trade services told IBD via email.
However, Vanguard did improve its platform in 2022, making it easier to navigate and access data.
It also enhanced its Portfolio Watch tool. The tool enables investors to compare the asset allocation in their current investment portfolio against their targets, Martielli explained.
In 2022,'s bear market, less exciting, but more focus on the long term, might have made Vanguard more appealing. Martielli summarized it this way, "when it comes to achieving unmatched investment outcomes, boring is beautiful."
How Payment For Order Flow Changed Trading Costs
Since investors ranked trade execution/pricing the No. 1 attribute IBD's survey, it's worth discussing a little history. For years, online brokers competed for investors on trade commission costs, as well as other factors.
Year after year, IBD's Best Online Broker survey revealed how important low trading costs were to investors. Then Robinhood changed the game. It offered no-commission trades and other brokers followed suit. So the IBD survey evolved from investors rating their brokers on the cost of commissions to rating them on trade execution/speed/price.
With no commissions, where do brokers make their money? Some brokers have found a new revenue source from a practice known as Payment for Order Flow (PFOF). Market makers like Citadel Securities and Virtu Financial pay brokers to route their orders through them.
Market makers argue they're adding liquidity to the market. Kenny Polcari, managing partner at Kace Capital Advisors, who spent decades trading on the floor of the New York Stock Exchange, pushes back on that idea.
"(Market makers) shifted the liquidity away from the public markets and into dark pools," Polcari told IBD. "The public markets are open to everyone, with the bid and offer right there for all to see. In dark pools, there's no transparency on prices and order size until after the transaction is done."
Gary Gensler, chair of the Securities Exchange Commission, doesn't like this arrangement between some brokers and market makers and fears an "inherent conflict of interest." A ban on the practice was discussed, but as of September 2022 it was being left alone. However, IBD and other news sites have reported that the SEC may still require rule changes to how market makers compensate brokers for moving trades through them.
- Review our list of the top brokerages in 18 key attributes.
- Learn about this year's battle for top broker.
- How much can you earn from brokerage incentives?
- What are the latest features in portfolio analysis, and how did brokerages help investors with trade ideas in last year's bear market?
What About Broker Customers?
Some customers are confused about trade pricing and the role of market makers. Do brokers' who have relationships with market makers have better prices?
Yes, according to a study led by Christopher Schwartz, a finance professor from the University of California, Irvine. It found that firms that accept payment for order flow, like TD Ameritrade, actually offered better prices and execution than Fidelity and Interactive Brokers, two firms that don't accept payment for order flow.
The Best Online Brokers survey didn't have the empirical evidence of the Schwartz study, but interestingly IBD found similar results. Using our customer experience score, TD Ameritrade came in first in trade execution/speed/price. Fidelity came in second followed by Interactive Brokers at third.
They each tout statistics on their ability for price improvement compared to the National Best Bid and Offer (NBBO). But it's hard to do an apples-to-apples comparison of brokers' price improvements. Their marketing materials cite different methodologies. And don't forget about the multiple footnotes.
Best Trade Execution/Speed/Price
TD Ameritrade says on its website that it gets a price improvement for investors on 98% of its trades. It says the average improvement is $1.32 per 100 shares. It touts an execution speed of 0.04 seconds.
Fidelity notes that it delivers a price improvement on 90.46% of investor trades. The improvement averages $17.46 per 1,000 shares. And it provides an average execution speed of 0.08 seconds. Fidelity also claims to be the only firm to voluntarily report price improvements using the Financial Information Forum standards.
But Polcari notes: "Most retail investors aren't buying thousands of shares at a time, so we're not talking about big savings."
Finally, Interactive Brokers takes a different tack. It offers statistics on clients' total trading costs, with commissions and regulatory fees, versus the daily volume weighted average price (VWAP).
Remember, broker price improvement claims are for publicly available prices. When a deal is done in a dark pool, there might be better prices out there, but no one can see them.
Follow Justin Nielsen on Twitter at @IBD_JNielsen.
