When investing in stocks and other securities, it takes the services of a registered brokerage company in order to make sure that those trades are properly executed. Years ago, investing in stocks would require a personal visit to a broker, or at the very least, a phone conversation once your account was up and running.
Today, however, the internet has made our lives easier. We can, for example, use any number of online stock brokers to trade stocks instantly online. This is ideal in terms of convenience, as well as cost, as less overhead on the part of the brokerage firm equates to lower commission amounts being charged to investors. Yet, although most brokers tout low commissions, it is important to do a thorough amount of research and comparison before deciding on which firm is truly the best value for your money.
COMPARING STOCK TRADING COMMISSIONS
It may come as no surprise that – similar to most other things – cheaper does not always mean better. This is especially true when it comes to investing because the services you are utilizing should be geared towards helping you reach major financially related milestones in your life such as retirement, the purchase of a new home, or funding a child’s college education. So, spending a few extra dollars could end up saving you money down the road – or better yet, increasing your overall wealth.
Some things to consider when comparing stock trading commissions include:
Timing of Your Trades. For those investors who engage in day trading or other types of investing that require strict market timing, the speed with which trades are placed is of great importance. However, for most investors, a trade being placed within a few minutes as versus in just a few seconds will not likely make or break their overall return.
Customer Service. New and experienced investors alike will often require assistance from customer service. While some brokers like Scottrade and TradeKing offer commissions that are lower than industry averages, neither offers 24/7 customer support – which could make it difficult for investors who might need answers outside of regular customer service hours. Therefore, before deciding on a brokerage company based on commission price alone, be sure that you have a good idea of how – and how quickly – you can get your questions and concerns answered as they arise.
Available Research. The internet has allowed investors access to a great deal of information about companies’ stock and other investment related research. For example, although Charles Schwab only charges $8.95 for individual trades, it does not offer a calculator feature that shows investors their profit / loss or a probability calculator to help investors in making profitable trades. So, be sure that the price you are paying in broker commission also allows you the proper amount of research you will need available in order to make well informed investment decisions.
Educational Resources. Investors – especially those just beginning – should have access to education on investment vehicles as well as on investing techniques and strategies that can help them move towards their specific financial goals. For instance, Firstrade offers trades for only $6.95, however, it does not have beginner investor education, webinars, or videos that investors can use to learn more about trading. Therefore, although a brokerage firm’s commissions may be slightly higher than another, it could be because they offer more education or other helpful resources to their investors.
OTHER POTENTIAL FEES
In addition to trading commissions, you may also be charged other types of fees. These can include amounts charged for transferring funds into your online brokerage account, Individual Retirement Account (IRA) custodian fees, minimum balance fees (if your account balance falls below a stated minimum amount), and wire transfer fees.
When using the services of E*Trade and Fidelity, you can trade for under $8.00, however these firms do require an account maintenance fee—so be sure to add up everything when considering the overall bottom line on trade and account costs.
You could also be charged an account inactivity fee. This means that if you don’t make a certain amount of trades during a specific time frame, you could end up paying a fee. You may also be assessed a fee for closing your account.
So, in addition to the actual trading commissions, be mindful of any additional fees that you could be charged as well, because they can add up – especially if you are not aware of what could trigger the various charges.
Overall, the choice of broker really shouldn’t be based on single trading commissions alone, but rather on the overall services that are offered – because saving a few dollars on a single trade may pale in comparison to the investment gains that could be made with access to the right resources.
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