In this article we cover the many different brokerage account fees that you’re likely to encounter.
If you visited this page hoping to find the specific fees charged by particular firms and find the lowest brokerage account fees, then don’t despair, simply click on any of the broker headings in the menu at the top of this page to compare fees and other account features.
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Brokerage Account Fees #1 – Inactivity Fee
The inactivity fee, or account fee, is the basic fee that some brokers charge in order for you to maintain an account with them. In the vast majority of cases this is waived if a minimum trading volume is met, which is why it’s often called an “inactivity fee”.
The size of the account fee actually tells you something useful about the broker. If a firm is typically used to catering to the needs of clients who trade fairly infrequently, buy-and-hold investors for example, then it is unlikely to levy this fee, or it will be a small amount. If a broker’s offering is geared towards high frequency daytraders, on the other hand, then this fee may well be higher. Rather than be penalized, choose a broker that is used to dealing with clients with similar needs to yours.
Brokerage Account Fees #2 – Data Fees
Why on earth would a broker charge you for price data?
It may come as a surprise, but even though the speed at which data travels around the globe has become a hell of a lot faster, it still costs money.
The prices at which trades occur are recorded by the exchange on which the take place. Exchanges spend millions on infrastructure to collate, process, and export this data. The pass these costs on to their members who subscribe to their data feeds – your broker.
Your broker might then further process this data (especially in forex where the broker acts as a market maker and re-prices for their own customer feeds), before passing the data through to your trading platform.
As you’re the one who stands to profit from accurate live streaming prices, then it’s only fair that you should be expected to pay for them. The cost of data is nothing compared to what it was ten or twenty years back, when the cost of a quotron machine or a Bloomberg terminal required a second mortgage!
But hang on a minute! Do you really need live prices with tick data? If you’re not trading intra-day then the answer is possibly not. Free data from a site like StockCharts or CommodityCharts may be perfectly adequate. Although this data is delayed by around 15 minutes, if you’re trading from a monthly or weekly chart this will hardly matter.
If you do need live data though, don’t scrimp.
Brokerage Account Fees #3 – Exchange Fees
These only apply where a centralized exchange is involved, so they won’t feature in you list of brokerage account fees at all if you’re trading a de-centralized market like forex, or over-the-counter products like binary options or spread bets.
I don’t want to spend too long extolling the virtues of exchanges, but in short they offer:
- Zero conflict of interest
- Reduced counter-party risk
These benefits are significant, but they come at a price. Your broker will be a member or lease a seat on an exchange in order to transact your trades there, and for this they are charged a fee.
Naturally, some of this cost is passed on to you in the brokerage account fees that you pay. Because the cost of a transaction is set by the exchange, it doesn’t matter which broker you use, the cost in exchange fees will be identical.
Brokerage Account Fees #4 – Commission
Not every broker charges a commission, but every broker makes money by charging their customers, so if you’re not charged a fee that is termed a commission then you’ll pay for the opportunity to trade in some other way – typically through a mark-up in the spread.
Let’s just start by focusing on some of the positive aspects of commissions. A commission is a fixed amount. You have the certainty of knowing exactly what this cost will be in advance every time you trade. Whether volatility is high or low, commission remains the same. This is beneficial when you’re testing a strategy because you can be realistic about your costs.
The main drawback of commissions is that they are payable even when you make a market and provide liquidity using limit orders. When you are instead charged only the spread, then you can avoid this cost by relying upon other traders to actively cross the spread and fill your orders at no cost to yourself.
Brokerage Account Fees #5 – Spread
The final fee type that we’ll consider here is the spread. In some senses this is a cost of trading rather than a fee you are charged, but these are pretty much the same thing because ultimately they’re both going to cost you.
Some brokers make their money from the spread rather than by charging a commission. They do this by widening the spread, often significantly at times of volatility. But even if you pay a commission you’re still going to have to pay the spread whenever you take liquidity. This ‘natural’ spread is normally the very smallest possible price increment for that market (e.g. a single tick or pip), but the spread is a cost nonetheless.
Brokerage Account Fees – Summary of Charges
We’ll end this article with a summary of the account charges that you can expect to encounter during the course of a typical trade.
Forex Dealing Desk
Financial Spread Bet
Contract for Difference
Stocks & ETFs
|Data Fee + Inactivity Fee + Spread||Data Fee + Inactivity Fee + Commission + Spread + Exchange Fee|
In the case of the second column, note that although there are more fee types, each particular fee is likely to be less than you’d find in the first column and the total fee may also be similar. In the case of exchange traded products such as futures contracts, the transparent pricing and piece of mind that comes with regulated trading is often worth the small additional cost.
There are many ways to save on brokerage account fees, and brokers regularly offer promotional incentives. Clicking on one of the broker types listed in the menu at the top of the page will take you straight to the latest deals and offers for dozens of great brokers.