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How brokerage fees are paid

How brokerage fees are paid

When you use a brokerage to trade products such as stocks, mutual funds or bonds, the brokerage will generally charge you certain fees for their services, such as filling your orders and maintaining your account. How you pay these various fees differs based on the type of fee and the brokerage, but usually they are separate charges deducted from your brokerage account.

Brokerage fees
The essence

  • Brokerages charge fees for their services that clients have to pay.
  • Fees are usually automatically deducted from your account, either when you make a trade or at the end of the month.
  • There are ways that you can avoid paying some brokerage fees.
  • Use a brokerage fee calculator to easily compare brokerage fees.

Brokerage fees
Paying brokerage fees

There are many different kinds of brokerage fees. Most of them are charged either as a flat fee amount, or as a percentage. If the brokerage operates transparently, then these fees should show up separately, and marked clearly as trading fees, in your monthly brokerage portfolio reports and account statements.

As a general rule you do not have to take any active steps to pay the fees – they are charged automatically to your brokerage account.

Trading fees for transactions are deducted automatically and immediately when you make a buy or sell order. The same applies to any potential deposit or withdrawal fees. If the broker charges an account maintenance fee, this is usually charged monthly.

Many brokers offer monthly packages for a flat fee, which cover a range of services and trading fees. Some brokers charge an annual account fee, calculated for example as a percentage of the assets they manage on your account. However, these fees are usually also charged monthly or quarterly.    

However, there are certain kinds of hidden fees that you pay that won’t show up separately in your account statements.

  • These are typically spread costs, or the difference between the buy and sell price of a product.Some brokerages, especially for products such as forex, make money on the difference between the buy and sell (or bid and ask) prices, instead of charging a commission. In this case, the trading fees are said to be built into the spread. The spread costs are usually indicated by the broker (e.g. “spreads from 1.1 pips”).
  • Another inherent fee, or hidden cost, that you may pay that won’t show up in your statement is when a broker, usually one that offers commission-free trading, receives compensation from a market maker in exchange for routing its clients' trades to that particular firm. This practice is called payment for order flow (PFOF) and may in some cases lead to the client paying more at the end of the day, as instead of commissions they are paying higher price spreads. Read more about PFOF in our article on how brokerage fees work.

 

Brokerage fees
Tips for avoiding brokerage fees

There are certain practices you can follow and things to keep in mind that can help you avoid, or at least minimize, some brokerage fees. 

  • Use brokers that offer commission-free trading. An increasing number of brokerages have started offering zero-commission trading for stocks in recent years. Also, even if a brokerage charges trading fees, they sometimes offer a list of exchange-traded funds (ETFs) that can be traded without commission. 
  • Take advantage of promotions and limited offers. Certain brokers offer new clients some commission-free trades for a limited period (e.g. a few months) after opening their account.
  • Read the fine print. Brokerages have to publish all their fee-related information, so make sure to find and read all the little details before making any investment decisions.
  • Avoid large spreads. Spreads are the main kind of cost you pay when trading certain products (e.g. forex or CFDs), so it is hard to avoid them, but their size matters. Keep an eye out for investments with lower spreads, as this could make the difference on your investment returns.

Brokerage fees
Compare brokerage fees

A good way to see how much brokerages charge in fees and commissions is to use a tool called a brokerage fee calculator. Check out BrokerChooser’s own brokerage fee calculator to calculate exactly how much you will pay in trading fees at a given brokerage, or see which brokerages have the best offer for your planned stock trade.

 

Further reading:

Author of this article

Tamás Deme

Author of this article

Tamás believes in clear and simple writing that is accessible to everyone. He has almost 20 years of experience as a financial journalist, as well as an editor and proofreader. He previously worked at Interfax news agency and wrote about M&A deals for EMIS DealWatch.

Tamás Deme

Content Editor

Tamás believes in clear and simple writing that is accessible to everyone. He has almost 20 years of experience as a financial journalist, as well as an editor and proofreader. He previously worked at Interfax news agency and wrote about M&A deals for EMIS DealWatch.

Everything you find on BrokerChooser is based on reliable data and unbiased information. We combine our 10+ years finance experience with readers feedback. Read more about our methodology

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