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Are Trading Costs Really That Important?
A lot of traders and investors continuously search for low cost or even free stock trading brokerage services. But, is that really so important?
Fees and commissions are probably the most important criteria for majority of traders and investors. People take a lot of time to research competition in brokerage industry especially when it comes to trading costs, while they forget to research and pay attention to 'what you get for what you pay'. Some brokers are definitely more expensive than others, but they might be offering some extra services at the same time. You have to be quite experiences investor to be able to make a fair comparison. Let's have a look at some major concerns to focus on when it comes to comparing brokers costs.
Things to Consider When It Comes to Trading Costs
First of all, read the price list from beginning to the end, also the small print; that is where some juicy details are usually hidden. While some brokers have user friendly price lists, meaning, the price you see includes all the costs and nothing is hidden, some other brokers have complex prices lists and you have to combine several figures to find out how much will the transaction cost you indeed.
Next, be careful about special discounts, which are only valid for specific kind of trades. For example, one broker might be offering free stock trading, but only when it comes to trading their own funds or exchange traded funds (ETFs), or for trading stocks only on a specific market is also a common situation. This is a marketing approach to attract new stock traders and investors, since they are not experienced enough to get the whole picture; the problem is, that fees for trading other instruments or on other stock exchanges is much more expensive.
Third, check in details what you get for the price paid. If the broker charges you higher fees, but provides you a top end trading platform for free, it might be worth it. Of course, it depends on the type of trader you are and the level of knowledge and experience you already have. It is many times wise to pay a little more as long as you know what you get for that extra dollar paid. We have been in business for a long time and we can assure you, there are huge differences in the level of services brokers provide you and kindness of their personal.
We would like to remind you about one more thing when it comes to free stock trading. While you will rarely see stock brokers offering you trading stocks for free, there are other financial instruments where free trading is very usual, for example Forex trading. There are many Forex brokers offering you free trading. Common, do you really believe it is free? There is no free lunch in the world of trading and investing, keep that in mind, always. If broker is not charging you a trading fee, they earn their salary somewhere else. It could be in higher spread between the bid and ask price (also very common in financial spread betting) or somewhere else. The point is, you will pay!
Free Stock Trading - Important or Not?
Let us finish this article with a bit more provocative question. Are trading fees really that important, do they really deserve the first place on the list of criteria for selecting a stock broker? Well, you might not agree with us, but we certainly believe that there are other issues related with stock trading that are so much more important than trading fees. One good example is trading advice. We have met people losing more than half and sometimes even the whole invested amount. There is one thing you can be sure about - it didn't happen because of trading costs; or if we put it in other words. If you would get an investment advice that could double your initial investment, would you really care about paying 0.15% trading fee instead of 0.14%? I guess not.
Written by: Goran Dolenc
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