Commission and Fees

Updated on March 13, 2019

When trading stocks, the main goal is to make as much money as you can. Other than being on the wrong side of a trade, commission & fees are two factors that eat away at your profits. Brokers charge commission and other fees as an exchange for executing your trades and providing additional trading services.

Commission

Brokers charge a commission every time they execute a buy or sell order on your behalf. This means you are charged a round trip commission when buying and selling a stock.

For instance, if Mark wants to buy 10 shares of a stock at $10 a share, Mark will pay $100 to buy the shares plus an additional commission fee to the broker. If the broker’s stock trading fee is $5, Mark will have to pay $105 to buy the 10 shares. This includes $100 for the shares and $5 for commission. In a year the shares are now worth $20 a piece and Mark wants to sell his shares to secure his profit, also known as realizing his gains. Mark sells his 10 shares at $20 a share, equaling $200, but only receives $195. This is because Mark had to pay a $5 commission again when selling his shares.

Cheap vs. Expensive Commission

Commission fees vary between brokers but are generally cheapest when trading over the internet. Commissions from trading stocks using an online broker are typically flat rate fees that range between free* and roughly $8 per trade. Trading on the phone with an automated system or human broker that works at a firm can cost significantly more, typically ranging from $10 to $50 a trade. We recommend resisting calling your broker to trade stocks unless it is absolutely necessary.

Fees

In addition to commission, you should also be aware of other fees a broker might charge you. Annual Maintenance fees to maintain your account are uncommon but still exist. Some brokers also charge Inactivity Fees on a monthly, quarterly, and yearly basis if you aren’t frequently trading stocks. Although many brokerages have high quality FREE trading platforms that meet the needs of most investors, some do charge fees for the trading platforms they provide. Also, even though most brokers offer free and extensive research on stocks, some charge a subscription fee for access to research from the firm.

Choose a broker that does not charge any of these extra fees as they will unnecessarily lower the amount of money you are putting in your pockets.

Fees That Are Hard to Avoid

There are a couple of fees that are unavoidable though. All brokers charge a Margin Interest Fee if you use borrowed funds from the firm, known as margin, to invest in stocks. Margin Interest rates can range from 2% to 9% depending on which firm and how much money you are borrowing. Typically, the more margin you use, the lower your rate. Though for most investors, margin interest rates will fall between 6% to 9%.

Another fee that is hard to avoid is a Transfer fee. Varying by broker, you can be charged for deposits and withdrawals into and from your account. Deposits are usually free of charge but outgoing transfers fees can be around $75 per withdrawal. Limit these costs by choosing a broker with minimum to no transfer fees while also limiting the number of times you are transferring funds in and out of your account.

What Should You Do?

Ultimately, you should take commission and fees very seriously. Compare all brokers and choose the one with the lowest commission and fees that meets your trading needs!

Fees That Are Hard to Avoid

There are a couple of fees that are unavoidable though. All brokers charge a Margin Interest Fee if you use borrowed funds from the firm, known as margin, to invest in stocks. Margin Interest rates can range from 2% to 9% depending on which firm and how much money you are borrowing. Typically, the more margin you use, the lower your rate. Though for most investors, margin interest rates will fall between 6% to 9%.

Another fee that is hard to avoid is a Transfer fee. Varying by broker, you can be charged for deposits and withdrawals into and from your account. Deposits are usually free of charge but outgoing transfers fees can be around $75 per withdrawal. Limit these costs by choosing a broker with minimum to no transfer fees while also limiting the number of times you are transferring funds in and out of your account.

What Should You Do?

Ultimately, you should take commission and fees very seriously. Compare all brokers and choose the one with the lowest commission and fees that meets your trading needs!