Brokerage Fees: The Top Guide for Traders

Brokerage Fees: Key Takeaways

• Brokerage fees are a big factor to consider when choosing a broker… 
• Why zero-commission trading doesn’t mean no fees…
• Learn tips for researching and understanding fees BEFORE you choose a broker…

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Today, traders can choose from many brokers — each with different brokerage fees. Which is best for you? That depends on you and your trading style. Read on to explore different brokerages, their fees, and what you need to know.

What Is a Brokerage Fee?

It’s an amount brokers charge when you have an account with them. 

Depending on the type of brokerage account you have, you can incur trading fees when you trade. There are also non-trading fees, which are unrelated to your trading activity.

Brokerage Fee: How Does It Work?

Ever check your balance and find it lower than you remember? If you haven’t traded, this could be the result of a non-trading fee. 

Some brokers charge a flat annual fee just for having an account with them — whether you trade or not.

But typically, brokers charge traders a fee when they trade. Some take it directly out of the brokerage balance. You may not even receive an alert or notification about the charge — so pay attention.

Even small fees add up. Know what you’re in for when you open an account. 

If you already have a brokerage account, you can usually find the fees on your statements or monthly or quarterly reports on your broker’s website.

Why Are Brokerage Fees Important for Traders?

Fees can impact traders’ profits. And trading commissions are typically the biggest fees.

The fees on certain asset classes or trading niches can even make trading those stocks unprofitable — even if other traders profit from them. 

That’s why choosing the right broker for your trading strategy is crucial.

How Are Brokerage Fees Calculated?

Most brokerages list their fees on their websites, but here are some of the most common…

Commission Fees

Every time you buy and sell stocks, you incur commission fees. That’s part of trading. It’s the broker’s fee for executing the transaction for you. 

The way brokers apply the commission, however, differs. It can be per trade or share. For example, a $2 per-trade commission will cost you $2 no matter how many shares you buy or sell. A per-share commission could be $0.001 per share, meaning the more shares you buy or sell, the bigger the commission.

When you trade smaller volumes, per-share commissions may make more sense. Do the math.

Zero-Commission Trading

Zero-commission trading isn’t necessarily the best fit for all traders. It depends on your style and trading plan. It can be costly for retail traders and great for traders with small accounts.

Typically, brokers that offer zero-commission trading give traders a worse order fill instead — also called payment for order flow. 

There are pros and cons to that. Some day traders may find that getting a worse fill on a fast-moving stock costs far more than the commission. For others, it could save them a lot of money. 

Spread Fees

The spread is the difference between the buy and sell price. 

Some brokers increase the spread and pocket the difference as profit. A slightly bigger spread than the market spread is tough to notice, but those are hidden fees you need to track.

Margin Fees

Margin fees are most common with short selling.

Like most loans, any capital you borrow from your broker is susceptible to interest — in this case, margin interest. And because it’s an interest rate, the fee you’ll have to pay will depend on how long the trade takes to execute.

If you plan to trade on margin, do your due diligence. Different brokers offer different shares to short and have varying margin fees as well as overnight fees.

Overnight Fees

If you hold a stock overnight on margin, your broker will probably charge overnight fees. 

It can be costly to hold margin positions overnight. Some borrow rates can be five times more for overnight positions. 

Why? Because brokers know overnight short squeezes can happen. So they want to discourage overnight swings on margin. 

Platform Fees

Some brokers have a monthly charge to use their trading platforms. You’ll likely find those fees associated with full-featured platforms rather than no-cost ones. 

But don’t dismiss them outright because of the fees. They could be essential to finding the right stocks to trade for your strategy… 

I think that’s the case with StocksToTrade. I’ve used many platforms, but StocksToTrade makes finding stocks easier. Featuring custom scanners, beautiful charts, and powerful news feeds — it’s a killer platform. See why traders prefer StocksToTrade with a 14-day trial for $7!

Conversion Fees

If you trade U.S. stocks but primarily use a different currency, you know that there’s a fee for converting another currency into U.S. dollars — and vice versa.

Many brokers charge a conversion fee as a percentage commission — which hurts large-sum conversions. And some international brokers convert each time you trade! 

It’s best to avoid converting your capital as much as possible. Or find a broker with low conversion fees if you plan to convert a lot.

Data Fees

Do you want real-time data or premium research features? Most brokers charge extra for these important features. 

If you don’t pay the monthly data fee, your data might be delayed by 5 minutes — or more. Your broker might not even let you trade the security if you don’t have the right real-time data package.

Account Fees

There are several types of account fees that brokerage firms can charge that are not trading-related. 

For instance, many brokers charge an annual maintenance fee just for having an account with them. Some require you to keep a minimum balance in your account to avoid additional fees. And if you don’t trade frequently, there might be inactivity fees too.

Expense Ratio Fees

There are management fees associated with trading exchange-traded funds (ETFs) and indexes — they’re known as expense ratio fees. 

Those fees are usually minimal, and they’re not technically brokerage fees, but they can still impact your profit.

Pros and Cons of Brokerage Fees

Brokerage fees can have a big impact on your trading returns — especially if you’re an active trader. Profitable strategies can quickly become unprofitable if you ignore those extra costs.

Higher fees might be worth it if they allow you to access tools you couldn’t otherwise access. It all depends on what you, as a trader, need. 

Michael “Huddie” Hudson — SteadyTrade Team mentor and my friend — made most of his early gains through short-selling.* But I’ve strongly avoided short-selling for years. We’re both day traders, but Huddie might prefer a broker with low margin rates.

You have the opportunity to learn from both Huddie and me in the SteadyTrade Team. We offer twice-daily webinars, trader reviews, and the best chat room around. Our goal is to help traders level up. Join the SteadyTrade Team today!

What Is a Fair Brokerage Fee?

Brokerage fees can be complex, but it all depends on how you trade. There’s no one-size-fits-all in trading.

For buy-and-hold investors, the popular zero-commission brokers can be a great fit. Day traders usually need more specialized brokers. They might have higher fees but more stocks available to trade.

Short-sellers probably need to find a broker with high short availability and reasonably low margin and overnight fees.

3 Tips to Analyze Brokerage Fees

The best way to find the broker with the lowest fees for your trading style is to make a list or spreadsheet of available brokers. Then, dig into the research to find and fill in all the fees that might apply to you.

Here are some tips for zeroing in on the right broker for you…

Tip #1: Know What You Trade

Do you short sell? Do trade OTC stocks, listed stocks, or options? Look for the fees associated with the type of asset you want to trade. 

For instance, a broker might charge commission and data fees associated with OTC and listed stocks. Or it could have commission, margin, and overnight fees for shorting stocks. 

If you want to trade options, check if the broker charges the commission, data, and platform fees that typically come with that asset class.

Tip #2: Know How You Trade

Are you in and out of a stock multiple times a day … or holding for days? Do you need the fastest executions, or are you OK with some slippage? 

Knowing these answers affects the broker you choose. Some brokers waive certain fees if you trade actively. Others charge higher fees if you hold for days.

You’d be surprised to see how small trading commission fees can add up quickly — even if you trade carefully.

Tip #3: Know How Often You Trade

Do you trade only during certain months? Or do you trade regularly throughout the year? 

When you don’t trade for long periods, your broker could charge inactivity or maintenance fees. Take these into account when choosing your broker.

How Can You Reduce Brokerage Fees?

Hate added costs? Here are a few potential ways to get them down…

Negotiate

Sounds simple … but call your broker and see if there are ways to reduce your brokerage fees. Find a competitor with lower fees and tell your broker you might switch…

Remember, it never hurts to ask. Lowering a $5 commission fee down to $2 can make a huge difference.

Let’s say you make 1,000 trades a year. That’s 2,000 buy-and-sell transactions. With a $5 commission, you’d spend $10,000 on fees. At $2, your commission fees would be $4,000. That’s $6,000 more in your pockets just by negotiating. It’s worth a call.

Trade More

It’s common for brokers to waive certain fees if you actively trade. But they all have different requirements for how many trades each quarter can lower your fees. Check your broker’s website for accurate information.

Of course, don’t trade more just to keep fees low. If the trade isn’t there, there’s nothing you can do. Never force trades. Just know this is one way you can potentially reduce fees.

Are Brokerage Fees Tax Deductible?

Brokerage fees can be deductible based on your situation. You can find some ideas online, but always consult a certified accountant for tax-related questions.

How Does the Brokerage Fee Affect Trading?

If you do your due diligence upfront and find the broker that’s the best fit for you, don’t worry too much about the brokerage fees. Unless you get blindsided by a large fee, there’s no reason to let fees affect your trading. They’re a part of trading. Focus on the correct setups and strategies instead.

Brokerage Fees: Frequently Asked Questions

How to Find a Broker’s Brokerage Fee?

You can find brokerage fees on your broker’s website. If you can’t find them, contact their support and ask. But make sure to get the list of fees before you open your account.

Can I Pay Brokerage Fees Online?

Yes, most brokers will automatically deduct fees from your trading account.

What Happens If You Don’t Pay Brokerage Fees?

If your account runs out of money but you still owe the brokerage, your broker might turn to a debt collection agency. This is not a position you want to be in. It’s best to pay your broker as soon as possible.

Brokerage Fees: The Bottom Line

Brokerage fees affect all traders. It’s part of trading. 

Your broker will make money off you one way or another. But the fees you incur depend on your choice of a broker and your trading style. Since there are many different types of fees, find out what your broker charges before you deposit your hard-earned money in their account.

Do you consider brokerage fees when picking a broker? Do they affect how you trade? Let me know with a comment below. I love to hear from my readers!