Brokers and Online Trading: The Costs
AAA
  1. Brokers and Online Trading: Introduction
  2. Brokers and Online Trading: What Does A Broker Do?
  3. Brokers and Online Trading: The Costs
  4. Brokers and Online Trading: Full Service Or Discount?
  5. Brokers and Online Trading: Choosing A Broker
  6. Brokers and Online Trading: Accounts And Orders
  7. Brokers and Online Trading: Conclusion
Brokers and Online Trading: The Costs

Brokers and Online Trading: The Costs


Opening an Account
Every brokerage has different terms and conditions for opening an account. There is a wide range of minimum deposits, varying anywhere from $500 to $2,500. Make sure you read the fine print beforehand. There is nothing more irritating than spending the time to fill out application forms only to discover you don't have enough money to open an account.

So, you're not loaded? Don't worry, more and more online brokerages don't require a minimum deposit at all.

Another option for those with small bank accounts is a dividend reinvestment plan (DRIP). A DRIP allows you to circumvent brokers by buying stocks directly from the companies that offer them.

Commissions and Fees
Every brokerage charges a different price (called the commission) to trade. The price is usually indicative of the service, so cheaper isn't always better.

  • The dirt-cheap brokers who charge $5 to $15 per trade get the job done. Prices are going down all the time and quality is getting better, but don't expect great support or perks.
  • The mid-priced discount brokers typically charge anywhere from $15 to $30 per trade. These brokers generally offer better customer support and additional services.
  • Expensive brokers come with high costs. In some cases you can expect to spend upwards of $100 to $200 per trade. These brokers are known as full-service, and we'll discuss them in greater detail in the next section.
The prices above are a very rough guide. Commissions on trades vary based on things like the type of trade (e.g. market order versus limit order). Even the method used to do the trade affects the price; commissions are different for online orders, touch-tone phone trades and broker-assisted trades.

The Hidden Fees
In general, the financial industry is excellent at hiding fees and charges under a layer of jargon. Beyond the commissions per trade, look for the following:

  • Fees for transferring assets both into and out of an account
  • Account maintenance fees
  • Inactivity fees
  • Fees for not maintaining a minimum balance
  • Interest on margin loans
  • Sales charges on certain securities (e.g. loads on mutual funds)
Make sure you shop around, but bear in mind that many of these fees are standard across the board.
Brokers and Online Trading: Full Service Or Discount?

  1. Brokers and Online Trading: Introduction
  2. Brokers and Online Trading: What Does A Broker Do?
  3. Brokers and Online Trading: The Costs
  4. Brokers and Online Trading: Full Service Or Discount?
  5. Brokers and Online Trading: Choosing A Broker
  6. Brokers and Online Trading: Accounts And Orders
  7. Brokers and Online Trading: Conclusion
Brokers and Online Trading: The Costs
RELATED TERMS
  1. Bid Wanted

    An announcement by an investor who holds a security that he or ...
  2. Multibank Holding Company

    A company that owns or controls two or more banks. Mutlibank ...
  3. Short Put

    A type of strategy regarding a put option, which is a contract ...
  4. Wingspread

    To maximize potential returns for certain levels of risk (while ...
  5. Volatility Smile

    A u-shaped pattern that develops when an option’s implied volatility ...
  6. Nadex

    Nadex stands for the North American Derivatives Exchange, a regulated ...
  1. Why do share prices fall after a company has a secondary offering?

    The best way to answer this question is to provide a simple illustration of what happens when a company increases the number ...
  2. Why do stock prices change following news reports?

    Stock prices move up and down every minute due to fluctuations in supply and demand. If more people want to buy a particular ...
  3. How do I calculate the adjusted closing price for a stock?

    When trading is done for the day on a recognized exchange, all stocks are priced at close. The price that is quoted at the ...
  4. How do I find historical prices for stocks?

    Whether for research purposes, bookkeeping or even general interest in historical performance, this is a question that many ...
comments powered by Disqus
Related Tutorials
  1. Investing For Safety and Income Tutorial
    Bonds & Fixed Income

    Investing For Safety and Income Tutorial

  2. American Depositary Receipt Basics
    Economics

    American Depositary Receipt Basics

  3. Stock Basics Tutorial
    Investing Basics

    Stock Basics Tutorial

  4. Binary Options Tutorial
    Options & Futures

    Binary Options Tutorial

  5. Top ETFs And What They Track: A Tutorial
    Mutual Funds & ETFs

    Top ETFs And What They Track: A Tutorial

Trading Center