The best online stock brokers don’t always have to have cheap trade commissions. A lot goes into providing a well rounded service which can make even $9.99 trades a worthwhile price to pay. Regardless of what price is paid though one important factor must always be taken advantage of, flat fee trades.
When trading stocks online make sure to consider brokers that offer flat fee trades.
Flat fee trades are commissions that remain the same regardless of what stock order the investor uses or size of the order that is being placed. This means that a 5,000 share limit buy order of a stock trading at $.50 has the same commission rate as a 100 share market order of a stock trading at $100.
Some well known brokers that offer flat fee trade commissions are TD Ameritrade, Scottrade, Etrade, and TradeKing. The trend to offer flat fee trade commissions is becoming increasingly popular and typically the only brokers that don’t offer a flat rate are the smaller less known brokers.
How Other Brokers Scam Investors
Most of the time investors only see the base price per order advertised and think they have a great deal on their hands. It is only after placing their first few stock trades online and they receive their statement that they were charged more than what they originally thought.
Here are a few examples of how investors can get scammed by not utilizing flat fee trades (prices hypothetical but relative to what some brokers actually charge):
- All trades OVER $3 cost $5 per trade, and any order under $3 costs $5 per trade + $.002 x number of shares – This means a 10,000 share order of a $1 stock would cost $25, not $5.
- All market orders are $4, but any limit and stop orders cost $4 + $9.99 per trade – A limit or stop order would cost $13.99 in this case, not $4.
- All orders are $6.99 for maximum 100 share order. Any larger order costs $6.99 + $.003 x number of shares, add $9.99 per stop or limit order – A 2,000 share stop order in this case would cost $22.98, not $6.99.
While these types of scams are becoming less and less common as the industry progresses it is important for investors to really look into every offer before diving in. When stock trading online always use flat fee trades.
One caveat, per share trading. Some brokers charge per share instead of per trade. These brokers are typically focused on active trading (see a list of brokers recommended for active trading).
Per share trading means with well known brokers means there are no catches or gimmicks, the price you pay is the number of shares x the per share cost. So 1000 shares at $.005 per share would be $5.00.
Naturally, the smaller the order size, the more advantageous per-share pricing is. Note, most brokers will though charge a minimum ticket charge of typically $1 per trade.
Deciding which commission structure is best for you is a matter of running the numbers and determining which will save you more over time. You can compare commission costs using the StockBrokers.com commissions calculator.
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