This is not investment advice. The information provided is for educational and informational purposes only and does not constitute a recommendation to buy or sell any financial product.
Brokerage fees are the costs associated with opening, maintaining, and trading through a brokerage account. The fees go beyond the headline commission, and the trader who looks only at the commission is missing a significant part of the cost. The all-in cost includes the commission, the spread, the custody fee, the inactivity fee, the withdrawal fee, the currency conversion fee, and the margin interest rate.
The total cost of a brokerage account over a year is the sum of these fees, and the total is often higher than the trader expects. The trader who understands the fee structure can choose a broker that minimises the fees for the trader's specific profile.
The commission
The commission is the most visible fee. In most developed markets, the commission on stocks and ETFs is zero for most discount brokers. The zero commission is a marketing tool, and the broker recovers the revenue from other sources (payment for order flow, margin interest, currency conversion, custody fees).
The commission on other products is not zero. Options are charged per contract ($0.50-$1.00 per contract in the US, €1-€5 per contract in the EU). Futures are charged per contract ($2-$10 per contract). Forex is charged through the spread (the difference between the bid and ask price). The trader who trades multiple products should compare the all-in commission across brokers.
The spread
The spread is the difference between the bid price and the ask price on a stock. The spread is charged by the market maker, not by the broker, and the spread is the market's compensation for providing liquidity. The spread is a cost that is incurred on every trade, and the cost is higher for low-liquidity stocks and lower for high-liquidity stocks.
The spread is the largest source of trading costs for most traders. A retail trader who pays zero commission but pays a 0.1% spread on a €10,000 trade is paying €10 in spread, and the €10 is a direct cost that is incurred on every trade. The spread is the same for a zero-commission broker and a commission-charging broker, and the trader cannot avoid the spread by choosing a cheaper broker.
The custody fee
The custody fee is a periodic fee (monthly, quarterly, or annual) for holding the account at the broker. Most brokers in the US and the EU do not charge a custody fee for accounts over a minimum threshold (typically €10,000 or $10,000). Some brokers charge a custody fee for accounts below the threshold, and the fee is typically €1-€5 per month.
The custody fee is most relevant for traders with small accounts. A trader with a €1,000 account paying a €3 per month custody fee is paying 3.6% of the balance per year in fees, which is a meaningful drag on the return. The trader should choose a broker that does not charge a custody fee for the trader's account size.
The inactivity fee
The inactivity fee is a fee that is charged when the account does not place a minimum number of trades in a period (typically 1-10 trades per quarter). The fee is common among active trader platforms that are designed for frequent traders, and the fee is rare among the retail discount brokers.
The inactivity fee is most relevant for long-term investors who place a small number of trades per year. A long-term investor who places 2-3 trades per year and pays a $50 inactivity fee per quarter is paying $200 per year in inactivity fees, which is a significant cost. The investor should choose a broker that does not charge an inactivity fee.
The withdrawal fee
The withdrawal fee is a fee that is charged when the trader withdraws funds from the account. The fee is typically free for one withdrawal per month and $10-$50 for additional withdrawals. The fee is most relevant for traders who withdraw frequently (income traders, active traders).
The trader should check the broker's withdrawal fee before making a deposit, because the fee is often not disclosed in the headline fee schedule. The withdrawal fee is the source of most complaints about hidden fees.
The currency conversion fee
The currency conversion fee is charged when the trader buys a stock in a different currency from the account's base currency. The fee is typically 0.5-1.5% of the conversion amount for most brokers, and the fee is a significant cost for a trader who trades in multiple currencies.
The trader who holds a euro-based account and buys a US stock is converting euros to dollars, and the broker charges a spread on the conversion. The spread is larger than the wholesale interbank rate, and the spread is the broker's profit. The trader should minimise the number of currency conversions, or choose a broker that offers a competitive conversion rate.
Related resources
Where to start
If you are evaluating brokerage fees, the most useful first step is to calculate the all-in cost for your trading profile (the number of trades, the products, the account size, the currencies), and to compare the cost across a few brokers. Our broker comparison lists the commission, the spread, the custody fee, and the margin rate at each broker, which together tell you what the all-in cost looks like before you open the account.