Technology has truly revolutionised the world over recent decades, and we now use it more than ever in modern life. From the Internet of Things to smartphones and AI, we now live in a tech-focused society. This has undoubtedly been the case for people who like to trade on the world’s financial markets – digital tech in crypto, for example, has made an impact. In addition, online trading, in general, has made a big splash and is how many people choose to trade.
If you are looking at investing in stocks, crypto or FX, it is wise to know what you are doing before jumping in. A crucial part of this is finding a safe online broker to trade with and understanding any trading fees they apply. Fees in trading can seem complex, but they are pretty simple when you read about them more. These Interactive Investor fees are a good illustration of what we are talking about and what it all means. The AskTraders site is full of expert advice on broker fees and trading in general.
If you are keen to get trading, you might still wonder why brokers charge fees and the different types of costs you need to know about.
Why do brokers charge trading fees?
The simple answer is to make money. The fees brokers charge users are where they make their profits. If they did not charge their users trading fees, brokers would not have a reliable source of revenue.
Broker fees are not just about making profits, though. Charging these fees also gives brokers money to re-invest into their business. This can help platforms improve over time, see more staff hired to support users, and enable brokers to provide extra resources for traders to use.
It is also a fact that being regulated costs brokers money. Completing reports and monitoring compliance is a lot of effort, after all! Brokers need to raise capital to cover this from somewhere, and trading fees are the option many choose. Of course, this is again of benefit to traders because they have a safe, regulated platform to use.
How do brokers charge fees?
Most brokers will charge fees when you use their services. This will generally see them apply the relevant fee at the time and deduct it from your trading account. While most brokers do charge fees in one way or another, not all charge the same fees or apply them at the same rate.
This makes it essential to thoroughly check the fees any broker has before using them. It is also vital to check how transparent their fee structure is and is it simple to understand? An overly complex fee schedule will be a nightmare to figure out over time and is best avoided.
What types of broker fees are there?
The most common example is when you execute a trade. This will typically see a fee applied for handling the transaction the trader must pay to the broker. While you can see a set fee, most brokers tend to use percentage amounts. This could, for example, see them charge 0.1% when you open up a trade on an asset listed on the London Stock Exchange. While this might seem a small amount, it can soon add up over time and reduce your overall profits. That is why carefully choosing a broker with an acceptable fee schedule is vital.
Are there are any other broker fees to know about?
In addition to the above, there are a couple of other standard broker fees to factor in when trading. Many platforms, for example, will charge an inactivity fee if you open an account but then do not trade for a certain period. Some brokers will also charge fees if you make use of their research or advice services. You could also find that some brokers charge an annual fee for holding and managing your investments.
Broker fees – Understand how and why
For a lot of traders, the issue of broker fees is a contentious one. It can even scare some people away from trading altogether because they see fees as some kind of scam. The truth is that not only are fees legitimate and necessary, but they are usually the sign of a broker you can trust. If you take your time to choose one whose fees are sensible, then you will still keep most of the money you make when trading.