Like any other service, you will encounter fees and commission charges each time you make a trade. Know what the costs are before you start trading, and aim to find a broker with the most competitive charges.
This article at a glance:
- Trading fees and commissions are charged by brokers for providing trading services.
- These charges can be fixed or variable.
- Common charges include spreads, account fees, financing charges and currency conversion fees.
Why are trading fees and commissions charged?
Trading is a business, and like any other business, brokers charge fees to cover costs and make a profit. These fees can either be fixed per trade or variable. Fixed costs may be applied to deposits, withdrawals and financial transactions. Variable costs are known as commission charges and are typically applied to trades.
Regardless of the form these costs take, they are charged by brokers in return for providing access to financial markets and trading tools. As such, the costs can vary depending on the brokerage you use, the security you’re trading, and the amount you trade.
Different trading fees and commission
Fixed charges apply regardless of the volume traded. Commissions and other variable charges, on the other hand, change based on traded volumes. The main fees you’ll encounter when you’re trading online are:
Bid-ask spreads
This is the difference between the bid (buy) and the ask (sell) price. These terms refer to two prices – one that the market will buy at and one the market will sell at. The difference between the two is known as the spread.
Financing charges
You may be charged interest for holding a leveraged position overnight. If you trade forex on margin, for example, and don’t close the position before the end of trading, you could be charged an overnight holding fee.
Currency conversion fees
You may be charged a fee for making trades and/or payments in a non-native currency. For example, if you hold an account balance in GBP but want to buy stocks available only in USD, there may be a currency conversion fee to exchange your GBP for USD.
Account fees
You may be charged an account opening fee for opening an account with a broker. Some trading platforms also have monthly charges that function similar to subscription fees. These are known as monthly account fees. It’s worth noting that not all brokers charge this.
What is commission-free trading?
Commission-free trading is a service that charges you 0 commission for buying or selling a security. Through this offering, 100% of your investment goes into the security you’re buying.
However, it’s important to note that brokers that offer commission-free trades are still a business. As such, you may have to pay a monthly account fee, or fees on certain products may be marked up. You may also find that the prices you can buy/sell at are moved further away from the market rate.
Shop around to see the different fees and commissions structures offered by different brokers to find one that works for you.
This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. INFINOX is not authorized to provide investment advice. No opinion given in the material constitutes a recommendation by INFINOX or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
