For better or worse, there is little in the way of uniformity when comes to the commissions various brokers charge us. We're going to take a look at some of the basics of brokerage fees for stocks, options and forex to get you prepared for the cost of trading.
Stocks: Fees Galore
When it comes to trading stocks, there really are too many fees and since there are so many brokers competing for your business, it's hard to discern where the best deals really are. If you're an independent trader or investor and don't need a lot of handholding beyond getting an order placed, your best bet is a discount broker. Previously, discount brokers didn't offer much in the way of frills and extra services, but since they want to take business from traditional brokers, their suite of services and tools has expanded over time.
If you're buying or selling a stock through an online broker, you shouldn't be paying anything more than $15 a trade and even that is pretty high. In reality, you should be paying $7 to $10 a trade with an online broker. If you're using a traditional broker like Morgan Stanley or Fidelity and you like to call someone on the phone to get a trade placed or get some advice on stocks, etc., it's going to cost you. This is "full service" and full-service brokers charge for the privilege. Trades here can cost $20-$25 each or more. So if you can avoid it, don't use traditional brokers just to buy and sell stocks. Use them for more advanced portfolio planning and services like that. In another trading nuisance, every broker is going to charge more and different prices for limit, market and stop orders.
Options: Contract Costs
With the boom in options trading in the recent years, there are more options brokers than ever competing for your business. The fee model that most options brokers use is to charge you a fee to place a trade and then a fee per contract that you're buying or selling. For example, if you want to buy 10 calls, the broker may charge you $5 for the trade and then a fee of 50 cents per contract, so the total cost of your trade is going to be $10.
If you like to trade more advanced options strategies like spreads and condors, keep in mind that many brokers have a limit on many legs you can add to a trade (usually it's enough to accommodate spreads and related trades) and since you're adding to an existing trade, you'll be dinged for the cost of a new trade and the cost of the new contracts, too.
You really shouldn't be paying anything more than $10 a trade and 75 cents per contract. Those figures are on the high side and you'll likely be able to find far better choices than a broker that has high fees like that.
Forex: The Best Fee Structure
One of the best things about trading forex is the straightforward fee structure. Part of the reason that trading options and stocks is more expensive than forex is because there are centralized markets that execute stock and option trades. Your broker has to pay the Nasdaq, New York Stock Exchange and Chicago Board of Options Exchange to make your trade happen. Guess what? That cost is passed along to you.
Since there is no equivalent market center for forex, the fee you pay per trade is the difference, or spread, between the bid and ask prices in the currency pair you're looking. Let's say the Euro/US Dollar is bidding 1.3938 and offering 1.3940. That's a difference of two pips and that's the cost of your trade. This is the way most forex brokers charge for trades and we'd be leery of any broker that uses another method.
Article Source: http://EzineArticles.com/?expert=Max_D.
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