Sometimes lost in the prices and data of the stock market ticker are the fees associated with trading stocks. These fees pay for the services needed to make a stock trade, including the costs to maintain the online trading platform or the stockbroker’s compensation. All brokerages charge some form of commission on a stock trade, though they vary based on the firm, the service, the size of the trade and the price of the stock.
Investment brokerages charge different fees and commissions depending upon the services they offer. The least expensive are online trades, where the investor makes trading decisions using an Internet-based platform that doesn’t require the assistance of a broker. Account holders who aren’t near a computer can make trades through a touch-tone telephone system that can cost on average two to three times as much as an online trade, according to the TradingSim website. In some cases, an investor wants to consult with a broker before executing a trade, which can result in commission fees that are up to five times higher than online commissions.
Stock Trading Commissions
These flat-rate fees apply to trades of most sizes, though a few brokerages apply additional fees for transactions of more than a set number of shares (one brokerage sets a maximum at 2,000 shares, another at 5,000, and yet another caps at 999,999 shares), Several of the largest brokers charge between $6.99 and $9.99 per trade, but some of the smaller services charge as little as $2.50 for each trade. These fees apply to both selling and buying. Sometimes online brokerages offer a certain number of free trades to entice new customers to sign up for the service.
Investors who want to day-trade stocks may need to consider using a direct access broker. These services don’t charge flat-rate fees; instead, they take a percentage of the trade. Since day traders routinely buy and sell different quantities of stock, flat-rate trading fees can eat into investment returns. One online broker charges $0.005 per share with a minimum fee of $1 for any trade. Direct access brokers also charge a platform fee, typically between $100 and $300, to any investor who doesn’t make a required number of trades each month. Also, day traders are required to keep a minimum of $25,000 in their account, according to the Financial Industries Regulatory Authority (FINRA).
The Securities and Exchange Commission (SEC) charges brokerages a nominal fee for stock sales; these fees are sometimes passed down to investors. Compared to commissions, the fee is small, totaling just $25.70 for every $1 million in stock sales. Some online brokerages charge account maintenance, transfer or setup fees, and additional research or legal work from the brokerage often comes with additional costs for investors, as well.