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The broker is the bridge between the buyer (trader) and the seller that facilities both parties to perform trading most effectively. But have you ever wondered how brokerages make money? The answer to this question is simple. Every trader pays a certain amount of money to the broker to perform online trading. It can either be a flat fee or a percentage of the transaction depending upon the broker’s policy. Traders and investors utilize the services that brokerages provide to administer their investment and achieve their financial goals by trading. In this article, we’ll discuss the brokerage or broker fees, their types, and the best online brokers for trading in detail.
What is a Brokerage Fee?
In simple words, brokerage fees are the amount of money that you pay for using the services that a brokerage offers in order to perform trading and manage investments. The broker fee might include transaction fee, withdrawal fee, inactivity fee, researching investment information fee, annual fee, etcetera. Understanding the entire fee structure and its different policies is important in order to manage your funds and trading efficiently.
The brokerage fee structure and regulations vary from broker to broker, and there are two primary fee types which are:
Trading Fees: This type of fee is only charged when you perform a trade. It can be a conversion fee, margin rate, financing rate, spread, or commission.
Non-Trading Fees: This type of fee isn't directly related to your trading activity, and it can include inactivity fee, withdrawal fee, deposit fee, etcetera.
Main Types of Broker Fees
Bear in mind; it's not necessary if one broker charges a fee for a particular service, then all the others will do the same. There are different types of brokerage fees, and you need to understand each of them in order to manage your funds better and perform more educated trading. Here's a breakdown of broker fees that we have created for your convenience.
Spread
In simple words, the spread is the difference between the “bid” price and the “ask” price or, in other words, the “buy” price and the “sell” price. For example, you buy a share ABC at 101 US dollars that has 100 US dollars as its sell price. If you sell the share immediately at 101 US dollars, then you'll experience a loss of 1 US dollar, which will be your spread cost. The wider the spread of a certain share, the higher its cost will be.
Most of the renowned stockbrokers usually utilize market spreads for assets. It means that they don’t involve any additional fee into their spreads and use the buy and sell price. This method is more beneficial for the traders as compared to the spread charges that CDF brokers charge.
Most CFD brokerages include additional fees while quoting spreads that result in a wider spread cost than the actual market spread.
In most cases, the spread is used as a commission by Forex brokers. The spread on Forex is the difference between the BID price and the ASK price in the currency pair quote. The broker can make the spread wider than the market one and earn from the price difference. For example, if the market spread in EUR/USD is 0.2 pips, and the broker offers 1.4 pips to traders, then brokers earnings will be 1.2 pips, or near 12 dollars per lot.
Forex Spread
Commissions
Some brokers charge commission as a flat per trade fee, and with other brokers, it’s based on your traded volume. The latter method isn’t advantageous for the traders who are dealing with shares that have a very low price. For example, it’ll cost you a whole lot of money to buy shares that are worth 1,000 US dollars where each share is worth less than 1 US dollar as compared to a scenario where each share is worth 100 US dollars.
Margin Rate
Margin trading is a concept in which you borrow funds from your brokerage to perform trading. For example, if you open a margin account with 1,000 US dollars, then by borrowing money from your brokerage, you'll be able to perform trading that's worth much more than 1,000 US dollars. But in return, you’ll need to pay interest on the borrowed funds that can range from 1 to 5 percent.
Conversion Fee
If you trade instruments in a different currency from your account's base currency, then the broker depending upon its policy might charge a currency conversion fee. It also varies from broker to broker, and some of the renowned brokers, such as Admiral Markets, charges 1 percent of the total amount.
Deposit and Withdrawal
Many brokers available in the market don't ask for any minimum deposit, and you also don't need to pay any withdrawal fee. But there are also some brokerages where you'll need to pay a withdrawal fee and deposit a minimum specified amount. The fee that you’ll have to pay will vary based on the withdrawal and deposit methods that a certain brokerage uses.
Inactivity Fee
Many brokerages come with a policy where you’ll need to pay a certain amount of monthly fee if you remain inactive for a specific amount of time. The duration of inactivity also varies from brokerage to brokerage, but typically it ranges from 12 to 24 months. Typical commission is around $5-20 per month without activity.
Stock Trading Fees
As mentioned earlier, a brokerage or online trading platform is a financial agent, middleman, or intermediary that allows you to trade in different stock markets. In order to perform trading against your desired financial instruments such as derivatives, futures, stocks, etcetera, you need the services that a broker offers. The transaction fees and other expenses associated with different investment services, products, and securities can affect your investment portfolio. That’s why it’s important to understand different types of brokers and their fee policies. Primarily there are two different types of brokers that you can use to perform trading in different stock markets.
Discount Brokerage Fees
Discount brokers usually don't offer any investment advice from the experts. Because of their limited features, the fee that they charge to perform trading is also very low. They mostly have a straightforward fee structure and charge a . Typically, the fee ranges between 0 to 0.01 US dollars per share.
Full-Charge Brokerage Fees
Full-charge brokers which are also known as full-service brokers, come with a wide array of services and products. Moreover, they also offer great researching tools and educational material that you can use to learn about trading. That's why their fees are also very high as compared to the discount brokers.
The typical commission a “full-charge” brokerage charges is typically somewhere between one to two percent of your total managed assets.
Example
For example, if you want to buy 1,000 shares of a certain company XYZ, with a 10 US dollar share price. Your brokerage will typically make 200 US dollars to allow you to perform that transaction.
Total amount = 10 dollar per share x 1,000 = 10,000
Commission = 10,000 x 0.02 = 200
So, the total cost that you’ll need to pay will be 10,200 US dollars.
Stock Brokers Fee Comparison
If you're interested in stock trading, then the first step is to choose the right online brokerage that offers the best stock trading environment. Searching the whole market can be cumbersome and can cost you a whole lot of time and energy. That’s why we have compiled the following table that contains the best online stock brokerages along with their trading fee comparison.
Forex trading is one of the most popular trading types. Because of its nature and high volatility, it's critical to choose the brokerage that not only offers a great trading environment but also comes with an affordable and reasonable fee structure. The following tables contain the Forex fee structure of the best Forex brokers available in the market, and you can choose the one that fits your needs and financial goals the best.
eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk. Don’t invest unless you’re prepared to lose all the money you invest.
eToro is one of the best online Forex trading platforms, and it comes with many unique features and advantages. One of the most important ones is that it offers a social trading option which is ideal for beginners.
eToro Withdrawal Fee
eToro Withdrawal Fee
The withdrawal fee structure of eToro is very simple as you’ll need to pay 5 US dollars per transaction. As you can see in the above image, the platform supports the following withdrawal methods:
Credit/Debit cards
PayPal
Wire/Bank transfer
Currency Conversion Fees
If the base currency of your account is USD and you want to fund it with some other currency, then you'll need to pay the conversion fee. For example, if you want to invest 500 pounds where the conversion rate is 1 US dollar, then you'll need about 659 US dollars in your account without the conversion fee. According to the policy of the platform regarding GBP to USD, you'll be charged 50 pips that's equal to 0.5 percent (2.50 US dollars). So, you'll have about 656 US dollars of initial capital in total.
eToro Spread
On eToro, traders pay spread which is included in their buying price against any market, and it varies from market to market. The typical size of the eToro spread for the EUR/USD currency pair is 0.7-1 pip, which is the average value in the Forex market.
Overnight Fees
Overnight Fees
The investment that doesn’t use any leverage doesn’t cost you any overnight fee. Otherwise, it's applied when you open a certain position, and it remains open to the next trading day. You can see the overnight fee of any opened position on the confirmation page. It's displayed at the bottom when you open a position manually, as shown in the image above.
Inactivity Fee
eToro charges a $10 monthly inactivity after 12 months of login activity. You'll be liable to pay this fee if you don't open your eToro trading account for 12 months consecutively. The platform continues charging the inactivity fee until your account runs out of balance. After that, the platform closes your account. That's why it's important to log in to your account every now and then, even if you don't need to perform any activity.
Brokerage Fees Reviews
TD Ameritrade is a low-fee online stock brokerage that offers free ETF and stock trading. According to my personal experience, it also comes with low options, Forex, and bond fees. On the other hand, it’s not a great option when it comes to the “futures." It's a fully regulated online brokerage that's authorized by multiple world-famous regulatory bodies. It has a long reliable track record, and I like the fact that it regularly discloses its financial standing.
Taylor Bailey, 45
Trader
Boston
eToro is my personal favorite online brokerage that offers a perfect environment for Forex trading. It offers premium quality tools and features along with a low Forex fee that helps me not only to make educated decisions but also improves the chances to earn more profit. I can trust this online Forex broker because it’s regulated by many world-famous financial institutes and regulatory bodies.
Dallas Watkins, 26
Investor
New York
Robinhood, by far is the lowest cost online broker that offers everything I need to perform stock trading. I don't need to pay a single penny to withdraw my funds, and It also doesn't charge any inactivity fee, which is a huge plus for me because I am an occasional investor. I am completely satisfied with this online trading platform and recommend it to all the beginners and occasional traders out there.
Gary Rollins, 35
Beginner Trader
Chicago
FAQs
Do you need to pay a fee on all brokerages?
Yes, almost all the legit and reliable online brokers, discount brokers, and full-service brokers charge fees. The charged fee is mostly the primary way of earning profit, and brokers also use it to maintain your account and grow their financial activities.
Is it possible to refund your broker’s fee?
You might be entitled to claim full broker fee refunds if your brokerage acted with dishonesty or incompetency. Moreover, you can also contact the local financial body of your area, such as the Department of Insurance, if you have any unresolved disputes regarding your non-funded brokerage fee.
What is the typical Brokerage fee?
The brokerage fee varies from platform to platform. The standard commission that you’ll need to pay to a full-service brokerage is somewhere between one to two percent of your managed assets. The per-trade flat fee of a discount broker usually ranges between 5to 30 US dollars along with a 0.5 percent maintenance fee.
How much money do you need to create a working brokerage account?
Depending upon your selected brokerage, you'll need to meet the minimum deposit policy then can be 1,000 to 2,000 US dollars. But there are some legit online brokers that allow you to open an account with only 10 US dollars of minimum deposit. In the latter scenario, you might need to agree to the policy to deposit money regularly.
Chinmay Soni is a financial analyst with more than 5 years of experience in working with stocks, Forex, derivatives, and other assets. As a founder of a boutique research firm and an active researcher, he covers various industries and fields, providing insights backed by statistical data. He is also an educator in the field of finance and technology.
As an author for Traders Union, he contributes his deep analytical insights on various topics, taking into account various aspects.
Dr. BJ Johnson is a PhD in English Language and an editor with over 15 years of experience. He earned his degree in English Language in the U.S and the UK. In 2020, Dr. Johnson joined the Traders Union team. Since then, he has created over 100 exclusive articles and edited over 300 articles of other authors.
The topics he covers include trading signals, cryptocurrencies, Forex brokers, stock brokers, expert advisors, binary options. He has also worked on the ratings of brokers and many other materials.
Dr. BJ Johnson’s motto: It always seems impossible until it’s done. You can do it.
Mirjan Hipolito is a journalist and news editor at Traders Union. She is an expert crypto writer with five years of experience in the financial markets. Her specialties are daily market news, price predictions, and Initial Coin Offerings (ICO). Mirjan is a cryptocurrency and stock trader. This deep understanding of the finance sector allows her to create informative and engaging content that helps readers easily navigate the complexities of the crypto world.
