Making a profit gets most of the attention in trading. But like any business, successful trading requires tracking both profits and expenses. Arguably one of the biggest expenses will be your online stock broker, and without taking the time to compare your options, steep fees could be delaying your profits. We discuss 5 Best Online Stock Brokers of 2019 in this blog post.
But brokers are a necessary expense. You need their business to do your business; like buying from a supplier to sell goods. Making matters worse, the advertising space has become saturated than ever. Bull markets (like we’ve had since 2009) awaken dormant investors, new money and new traders inspired to get in on the action. Brokers will always be there to meet the demand—for a price.
I’m going to strip away all of the loud, expensive and often deceiving advertising to give you a honest breakdown of broker commission and margin interest.
If you are trading with less than $50,000 in capital, you need to trade using the lowest trading fees that currently exist. When you buy fewer shares, the applied commission fees raise the purchase price of those shares. Essentially, commissions create a double taxation, which disproportionally affect smaller traders.
For example, Fidelity charges $4.95 per trade. Therefore, buying 10 shares of Facebook (FB) at $203.23 will actually cost $203.725 per share. (10 shares of FB at $203.23 is $2,032.30, plus $4.95 is $2,037.25, divided by 10 shares is $203.725 per share). This is called “slippage” — an uphill battle. In this example, the price of FB will need to improve from $203.23 to $203.725 just for you to break even.
Long story short, buying 10 shares of FB at $4.95 requires you to make at least 0.48% on the trade after buying and selling just to break even.
This can be a tough pill to swallow, so it’s important to keep broker fees low. You need to bargain shop. You need to be scrappy. Why make growing your account harder than it has to be?
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Here’s the scoreboard for 5 of The Best Online Stock Brokers of 2019: Fidelity Investments, TD Ameritrade, Interactive Brokers, E*Trade and Merrill Edge (Merrill Lynch).
In terms of affordability and price, Interactive Brokers is the clear winner, perfect for traders who require low fees to grow their account balances. As your balance grows, you’ll then have the luxury of choosing a broker with additional resources to meet your trading style and goals.
Fidelity Investment’s overall customer experience in 2018 was the highest achieved by any of the best stock brokers since the Investor’s Business Daily began polling readers 6 years ago. TD Ameritrade provides more sophisticated handling of options trading than any broker. Charles Schwab offers some of the better trade ideas and retirement planning tools. E*Trade has excellent trading software. And Merrill Edge is NerdWallet’s award winner for best research broker and an easy transition for Bank of America customers.
Remember, at the end of the day trading is still a business. Reducing expenses is just another way to increase profit. If you think it’s only fun and games, hit the casinos. At least the drinks are free.