No matter what broker you choose, you have to pay brokerage. Brokers play an important role by executing your share trading orders to buy and sell shares and offer a range of other helpful services. For this, they charge a commission or a brokerage fee. While you can’t do away with brokerage entirely, you can be strategic in choosing a broker to pay a lower commission.
Choose a discount broker
One of the first things you should do is pick a discount broker instead of a full-service broker. A full-service broker is a traditional broker that provides a range of services in addition to broking such as advisory, wealth management, research, etc. Owing to the extent of services provided, full-service brokers have a high brokerage fee. As opposed to this, discount brokers only provide broking services, often only through an online platform and at reduced brokerage rates than full-service brokers. They tend to have a fixed or flat brokerage fee for each order irrespective of the trade volume.
Since discount brokers typically only operate online, their overhead costs are low, and they pass on that cost benefit to their customers. In fact, there are certain discount brokers out there who may charge little to no transaction fees for certain types of orders or securities. Discount brokers tend to have a well-designed online trading platform and app and there is usually no relationship manager or live broker.
The only thing to keep in mind here is whether you have enough knowledge about the stock market to do away with the investment advisory and other services that full-service brokers offer. If you are new to investing in the stock market investment, you may want to think about the brokerage you are paying for in a different light. If by paying a higher brokerage, you can make strategic investments and earn returns for your portfolio then that may be better than trying to save money on brokerage and ending up with uninformed investment decisions.
Things to keep in mind when choosing a broker
In addition to the brokerage charges, here is a list of things you should check when choosing a discount broker online:
- Ensure you understand the other rates being charged
There may be brokers out there who advertise really low brokerage that may seem too good to be true. And if that’s the case, you may want to investigate the rates properly so that you can ensure that there are not any hidden fees. You should see if there are shares delivery fees or a minimum turnover commitment and if the amount of annual maintenance charges, account opening charges, etc., are inflated to make up for the low brokerage offered.
- Online security
You might not think of this at first, but it is essential given cyberspace and the access it gives others to your sensitive information. You should look into some basic things such as whether the discount broker you are choosing offers a two-factor authentication on their platform.
It’s natural to want to select a broker with the lowest brokerage because you don’t want the commission to eat into your stock market returns. Hence, discount brokers are a good option to consider. Just make sure you choose a broker only after understanding all the costs, conditions, and services involved.