Understanding fees charged by online brokers

Fees charged by online brokers vary in terms of the dollar amount and frequency of trades. Some online brokers may also charge a monthly subscription fee. So where and how do different fee structures apply ?

The standard brokerage charged will vary depending upon the dollar amount of trades placed and method of placement: online or by phone. Brokers charge a flat fee for trades up to $10,000 to $20,000, while a percentage brokerage fee is applied to trades higher than this first range.

Online brokers are now offering discounts to frequent traders, or volume discounts. These discounts are triggered where, for example, more than five trades are made in a calendar month. The discount may take the form of discounted brokerage for subsequent trades, rebates on brokerage for all trades placed, refunds of monthly subscription fees or access to dynamic data and software.

Some online brokers will charge a monthly subscription fee which gives investors access to value added services. This may be a premium or professional branded service for more sophisticated investors or those demanding access to more immediate market data. These services may include dynamic market data, price alerts, interactive charting and access to IPO’s.

Those online brokers that allow you to trade with a margin loan may also charge a slightly higher brokerage fee to process these trades. Investors need to consider the choice of margin lenders open to them and whether they can place margin trades online as well as by phone.

Some online brokers offer reduced brokerage where there is less cost to them in processing a trade. Examples here are reduced brokerage for market orders (TD Waterhouse) and where the online broker requires you to open a specific cash settlement account (Comsec). In effect, the cost savings of processing these trades are passed onto the investor.

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