Financial trading is a process of buying and selling financial instruments such as stocks, currency pairs, cryptos, and so on. In order to access these markets, financial traders and investors need a trading platform, and providers of these platforms are brokers. Financial brokers charge various commissions, which is crucial to understand in detail to maintain profitability and anticipate your strategy’s success probability. These commissions are several, including spreads, trading commissions based on lots traded, overnight fees, and so on. Let’s explain some of the most important trading fees and costs, and define how you can find an affordable broker to increase profitability by reducing costs.
What are typical broker fees and commissions?
There are a few main commissions charged by every broker. These commissions include trading commissions, spreads, account maintenance fees, deposit and withdrawal fees, and platform and data fees. Since the spread is a major commission that is always charged by every broker, we start with the spread definition in online trading.
Spreads
One of the primary broker fees is spreads, which is just a difference between the buying and selling prices. These prices are also called bid and ask prices and what’s most critical here to memorize is that, whenever you buy or sell an asset, you always pay the spread. This makes spreads very essential in trading, especially if you are trading on intraday timeframes. Paying spreads twice (first when opening and then when closing the position)can make trading very expensive if the spread is high. Highly volatile markets are known for wide spreads and traders should be careful. This is true during the major economic news.
Trading commissions
Trading commissions are fees charged for various reasons on a trading account and during trading activities. These commissions include fixed fees, tiered pricing, and percentage-based charges.
Fixed fees are commissions that are charged per trade, regardless of trade size. Tiering pricing is a fee that decreases when trading volume increases, and percentage-based charges are percentages of the trade’s total value, which are common in international markets or with specific brokers. Let's which commissions are popular depending on the trading asset type you are trading:
Stocks — Stocks often are subject to fixed or tiered commissions
Forex currency pairs — Often commission-free and sometimes involve commission per lot for low-spread accounts
Options — Options typically have per-contract fees in addition to base trade commissions.
Account maintenance fees
The most common maintenance fees include inactivity fees, monthly maintenance, or custodial fees. Inactivity is when the trader has a trading account with a capital on it but does not trade for a set amount of months. The broker then charges an inactivity fee per month. This is usually done after 6 months of inactivity. However, each broker has a different inactivity policy with different time periods and fee amounts. Some brokers do not charge maintenance fees, which are often Forex brokers.
Deposit and withdrawal fees
Commissions are sometimes charged by the broker for deposits and withdrawals. However, in many cases, deposits are not charged to motivate traders to deposit capital and start trading. Withdrawal fees are sometimes charged, and it is important to read the broker’s conditions to see whether it charges withdrawal fees. When transferring money between different trading accounts, brokers might charge a fee. If you are depositing in one currency and want to trade in another currency, conversion fees might follow.
Platform and data fees
Forex trading is often commission-free. Trading platforms and price data are also free. However, when it comes to stocks and especially futures, there are often monthly fees for both trading platforms and price data.
Finding an affordable broker — A beginner’s guide
It is not difficult to find an affordable broker. Traders have to read account description information carefully. This information includes account types, spreads for each account, and trading commissions for each account type. Zero spread accounts in Forex trading come with commissions which should not be higher than 7 USD per lot round turn (3.5 USD per side). If you are trading stocks, futures, or any other assets, it is crucial to check which platform the broker provides and what are monthly fees for the platform and price data, as well as spreads and trading commissions.
In the end, it all depends on the trader’s preferences and trading methods. Traders who quickly open and close trades, such as scalpers, typically prefer the lowest spread accounts and do not care about overnight fees and other commissions, while trend traders and swing traders should also check for these commissions.
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