Stockbroker costs are directly related to the level of service they provide. Stockbroker services range from giving expert advice and trading guidance to simply placing trade orders for self-directed accounts. Reducing stockbroker costs can keep more of your profit in your pocket and lower the expense of a loss. Use one of a number of free online calculators to see how different stockbroker costs can affect your trading profit and loss.
Consider your stock trading style when looking for a stockbroker. If you make your living trading stocks, it might make most sense to go with a bare-bones, no-frills discount broker that offers an advanced trading platform and sophisticated charting software. Your stockbroker costs will be lower, since you are making all your own investment decisions. If you're just starting out trading and want the advice of a trained professional, your stockbroker costs will be higher.
Research the types of services different brokerage firms offer. In addition to placing trades, full-service stockbrokers offer financial planning, retirement and tax planning. Low-cost or discount brokerage firms have stockbrokers available to place your trade orders, but liability issues prevent them from offering financial advice or guidance. Be sure to ask if the firm’s stockbrokers provide investment advice or if their role is confined to order execution.
Get the commission schedule from several online brokerage firms and look at the range of services the stockbroker provides. See if the firm offers discounts for frequent traders or if they charge additional fees for infrequent traders. Don’t be afraid to call the firm and discuss fees with a broker. The competition between brokers to attract and retain clients is fierce, and you may be able to negotiate a better commission rate — especially if you're a frequent trader.
Assume your full-service stockbroker charges you $40 to open a trade and $40 to close it for a total cost of $80 per trade. If you buy 100 shares of XYZ stock for $30 a share for $3,000 (100 shares multiplied by $30 a share), then sell your 100 shares at $32 a share for $3,200 (100 shares multiplied by $32 a share), your gross profit is $200 ($3,200 minus $3,000). Subtract the $80 stockbroker costs, and your profit drops to $120.
Compare the above example with a discount stockbroker that charges you $7 to open and $7 to close a trade for a total of $14. Your profit would be $186 ($3,200 minus $3,000 minus $14) instead of $120.
- Be sure your brokerage firm doesn’t charge hidden fees if your account falls below a certain level or if you don’t make the minimum number of trades.
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