The Nature of Trading Fees

Trading fees are the fees you pay when selling or buying a stock. There are diverse brokers who charge different levels of trading fees depending on the service they are giving. You can buy and sell stocks in one of three ways; either through your bank, or through a traditional stock broker, or through an on-line broker. The level of trading fees is an important area to consider when deciding how you are going to trade stocks or stock indexes.  Whatever the size of your investment, there will be fees and commissions involved, items such as trading fees, interest charges and broker’s commissions which can accumulate and become a sizable amount. If you are investing $1,000 and the trading fees are steep, you will need to have enough return on your investment so as to at least break even on the trade, before even making some money.

The size of the fees depends very much on how much the broker does for you. For example you might feel comfortable in doing your own research, technical analysis and fundamental analysis, therefore you would be placing a buy or sell order with the broker and that would be the maximum involvement for the broker. For such a service the bank and the stock broker would charge a similar level of fees, while the on-line broker would be less expensive. However, if you felt that you couldn’t do the research on the stocks you wanted to invest in, you could ask the bank or your stockbroker for discretionary services which means that they have your authority to buy and sell shares on your behalf without consulting you beforehand. Of course, such a service comes with very expensive fees and commissions because the stockbroker or the bank is actively managing your portfolio.

The cheapest fees are when trading through an on-line broker. This is akin to asking your traditionalstockbroker to buy and sell shares whenever you want to trade, except that you are using an on-line broker’s trading platform and completing the trade on your own over the internet.

The advantage with trading directly over the internet is that although it is an ‘execution only’ relationship with the broker, trading platforms have a wealth of information available to the investor or trader. Every trading platform comes with technical analysis tools, fundamental analysis tools in the form of economic calendars and live ticker tape news feeds and candlestick charts where the investor can track what the price action on his selected stock is. So fees charged by on-line brokers are very cheap because of the wealth of add-ons the trader/investor gets with the trading platform.  

Finally, the fees charged by brokers for index funds are cheaper than other stock broker fees simply because index funds are passively managed and therefore the broker does not need to charge as much as with actively managed assets. Except, perhaps if you hold CFD’s overnight where you will pay a finance charge, depending on the prevailing interest rates.

Source: http://www.ufxmarkets.com/