How to compare online trading costs

15 juil. 2011

Many people have turned to buying stocks online in order to enjoy lower trading costs, and more autonomy in making trades. Full service brokerage firms charge an arm and a leg to manage your money for you, or even to execute simple trades. If you have a bit of know-how and a careful plan for investing your money, you may be better off going with an execution-only online broker. You should, however, compare the price of the different online brokers to find out what your costs will be.

Cost to execute a basic trade

When you are buying stocks, for most of the part, you will simply be buying and selling shares. The same is true if you are buying mutual funds. When you make a basic online trade and you either buy or sell a stock that is listed on a stock exchange like the NYSE or the NASDAQ, you are going to be charged a commission. You need to find out exactly what this commission is for each online broker you are considering. High commissions can quickly cut into any profits you make, especially if you buy and sell frequently. The average commission for an online execution only broker to allow you to do share trading should usually be under $10 in cost. Some online brokers, like Scottrade, only charge $7. There is even the option to trade shares online for $4 with a company called Sharebuilder, but only if you do the trading and share dealing as part of a monthly investment program with the company.

Other costs

There are also other costs to consider when you compare the cost to buy stock on line, if you plan to get into any kind of advanced trading. For example, if you are planning to engage in a future trade or Forex trading, the cost may be higher than the basic $10 or under cost for regular online stocks trading. Options trading and options brokers may also charge more for this type of trading. Trading options and on the Forex market is best for advanced investors since there is the potential to lose a lot of money, but if this is something that you want to get involved in doing, you will need to find an online brokerage firm that has a reasonable cost for these activities.

Minimum balance

Finally, find out what the minimum balance is to open your account. Some companies will charge more or charge maintenance fees if you do not maintain minimums.

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