An overview of the costs associated with trading
Many traders forget the fact that becoming a trader does not always mean a stash of cash. They blatantly ignore the brokerage fees, commissions and other expenses that accompany opening trading accounts as well as punctuate the investor experience.
The truth is, you can't avoid brokerage fees and commissions. They are part and parcel of the trading industry. What can be achieved is balancing these fees and ensuring as a trader you are educated about investments you have made and ensure your profits aren't eaten up by such costs.
What fees are out there?
Prior to cutting on costs, its integral to understand what fees are charged and how they vary from broker to broker. There is also a forex spread calculator that does the work factoring in below.
Brokerage Fees
A brokerage fee is the most common charge seen not only across the financial industry, but seemingly across all organisations that manage and facilitate assets on behalf of others. This fee is charged mostly for maintenance of a customers account, some brokers charge a percentage of the funds held in the trading account whilst others might charge a flat fee.
Commissions
Many brokers charge their clients commissions in order to use the services and platforms they provide. The commissions charged on trades can vary depending on the broker. Brokerage firms will generally charge commissions upon execution of an order. An example of a commission is as follows:
Commission on a US share is 3 US cents, this is subject to a commission charged at a minimum of $10 USD.
So, 1000-unit trade in a company at the price of $90 incurs a commission of: $30 based on the following calculation:
1000 (units) x $0.03 (commission charged) = $30 USD.
If the trade was for only 200 units, the commission charged would be $6 USD. However, because the minimum amount of commission charged stands at $10, the full charge will be applied. Commission charged by brokers also varies on the currency being traded.
The way brokerage firms calculating how to charge fees, is to their discretion. Some might charge low commissions as the level of support provided is not high relative to their competitors.
The question then becomes, how does one keep their expenses down?
New brokerage firms have adopted the approach of reducing commissions and brokerage fees, on the basis that it is a mechanism that allows them to attract new traders. This might be an innovative way in reducing fees.
Another pathway traders can take in order to ascertain what broker is the right fit for their trading habits is by understanding exactly what the different fees mean and how they operate. By doing so, traders will be able to tailor their habits to the broker which matches them the best, whilst acknowledging that the fees they pay are appropriate and suited to the investment strategy. A glossary on the types of fees that brokers charge can be found on the various broker websites such as Wikipedia.
This article was submitted by Compare Forex Brokers.