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.
Stock trading fees are a fact of life for every trader, and the fees can have a significant impact on the trader's returns over time. The trader who understands the fee categories, the typical ranges, and the way to compare brokers can avoid the high-cost brokers.
The main fee categories
The first category is the commission. The commission is a flat fee per trade, and the commission is the most visible fee. The commission ranges from €0 at a discount broker to €50 per trade at a full-service broker. The commission is charged when the trade is executed, and the commission is shown on the trade confirmation.
The second category is the spread. The spread is the difference between the bid and the ask, and the spread is the broker's compensation for executing the trade. The spread is implicit, and the spread is not shown as a separate fee. The spread is widest on illiquid stocks, and the spread is tightest on liquid stocks.
The third category is the platform fee. The platform fee is a fixed monthly or annual fee for the trading platform, and the platform fee is charged regardless of the trading activity. The platform fee ranges from €0 at a discount broker to €50-€100 per month at a premium broker.
The fourth category is the inactivity fee. The inactivity fee is a charge for not trading for a period, and the inactivity fee is designed to push the trader to trade more. The inactivity fee ranges from €0 to €50 per quarter.
The fifth category is the withdrawal fee. The withdrawal fee is a charge for withdrawing funds from the account, and the withdrawal fee ranges from €0 to €25 per withdrawal.
The sixth category is the currency conversion fee. The currency conversion fee is a charge for converting the deposit currency to the trading currency, and the fee ranges from 0.1 percent to 1 percent of the converted amount.
The impact of fees on returns
The impact of fees depends on the trading frequency and the trading size. The trader who trades 10 times per month and pays €10 per trade in commission has an annual commission cost of €1,200, and the commission is 1.2 percent of a €100,000 account. The 1.2 percent is a significant drag on the returns, and the 1.2 percent can erode the gains over time.
The trader who trades 100 times per month and pays €5 per trade in commission has an annual commission cost of €6,000, and the commission is 6 percent of a €100,000 account. The 6 percent is a major drag on the returns, and the 6 percent can wipe out the gains on a small account.
The trader who trades once per year and pays €50 per trade in commission has an annual commission cost of €50, and the commission is 0.05 percent of a €100,000 account. The 0.05 percent is a small drag on the returns, and the 0.05 percent is a manageable cost.
The typical ranges by broker type
The discount broker charges €0-€10 per trade in commission, with no platform fee, no inactivity fee, and no withdrawal fee. The total cost is €5-€15 per trade, and the total cost is a small percentage of the typical position size.
The full-service broker charges €20-€50 per trade in commission, with a platform fee of €20-€50 per month, an inactivity fee of €0-€50 per quarter, and a withdrawal fee of €0-€25. The total cost is €50-€100 per trade, and the total cost is a significant percentage of the typical position size.
The robo-advisor charges 0.25 percent to 0.75 percent of the assets under management per year, and the fee is in addition to the expense ratios of the underlying ETFs. The total cost is 0.5 percent to 1.5 percent per year, and the total cost is a small percentage of the portfolio.
How to compare brokers on total cost
The first step is to identify the trader's typical trading pattern. The trader should list the number of trades per month, the typical position size, the typical holding period, and the currency. The pattern is the basis for the comparison.
The second step is to calculate the total cost for each broker. The trader should add the commission, the spread, the platform fee, the inactivity fee, the withdrawal fee, and the currency conversion fee. The total cost should be calculated for one year, and the total cost should be compared across three to five brokers.
The third step is to look for hidden fees. Some brokers charge a fee for the data, and some brokers charge a fee for the API. The trader should read the fee schedule carefully, and the trader should ask the broker about any fee that is not in the schedule.
The fourth step is to consider the value. A broker with a high cost may offer a service the trader values, like research, advice, or a premium platform. The value can justify the higher cost, and the value can make the broker a better choice than a cheaper alternative.
Common questions about stock trading fees
Are commission-free brokers really free? No. The broker earns revenue from the spread, the payment for order flow, or the currency conversion fee. The trader pays the broker indirectly, and the trader should look at the total cost.
What is the typical inactivity fee? The typical inactivity fee is €10-€50 per quarter, and the inactivity fee is charged if the trader does not place a trade in the quarter. The trader can avoid the fee by placing a small trade once per quarter.
Can I negotiate the fees? Yes, at some brokers. The trader who has a large account or a high trading volume can negotiate the commission and the platform fee. The trader should ask the broker for a discount.
Related resources
Where to start
If you are evaluating stock trading fees, the most useful first step is to identify the trader's typical trading pattern, and to calculate the total cost for one year across three to five brokers. Our broker comparison lists the brokers and the fee schedules, which together tell you what the broker charges before you open the account.