Just like many financial terms, one can’t be quite sure whether commission-free trading is self-descriptive or not. But you can learn it here and now!
Have you heard of online trading or investing? Then, the chances are you have also heard of commission-free trading. There are many such terms like that which may feel pretty confusing at first. After all, trading – whether online or through traditional means is an activity that requires a set of knowledge and skills. Learning about all the related terms is a good way to start your journey trading the financial markets.
For the sake of all the resources that are already available, we hope that you already know what buying, selling, and holding means in the financial markets. Things get a little advanced regarding the fees and commissions, however.
So, today, let’s learn about the fees and commissions that you may incur as well as how you can avoid them with commission-free trading from below.
Fees and Commissions Associated with Trading
While the operational costs of an online broker are way less than a traditional one, it still costs some money. So, it’s obvious they would charge fees and commissions to cover their expenses as well as make a profit for their efforts. The most common types and fees and commissions that you normally have to pay to broker for the trading privileges are:
Brokerage Fees
While there are numerous free online brokers, many traditional and online brokers charge a brokerage fee. It may come in the form of trading account maintenance fees, deposit and withdrawal fees, subscription fees for premium features, trading platforms access fees, etc.
Trade Commissions
This is the fee that a trading platform or broker may charge for the privilege of buying and selling stocks or any other financial instruments such as options, currencies, and so on. If you appoint any professional manager or want to copy someone else’s trades, it may also result in paying a percentage of your investment in trade commissions.
Spreads on Trades
If you look closely at a training chart, you would notice a slight difference between the buying price and the selling price of a particular asset. It is known as spreads, the difference between which is usually charged by the broker. Spreads are often subject to change and can be really high for an unusually volatile asset.
Management Fees
Primarily charged by asset management firms, it usually refers to the percentage calculated in relation to the total amount of assets under management. Many online Robo-advisors also charge some fees for their trading signals and automated management services.
Does it Mean Commission-free Trading a Scam?
No, commission-free trading is a perfectly legitimate practice usually utilized by online trading platforms. It waives off the trade commissions incurred for buying or selling securities in the financial markets. These platforms also usually don’t charge a brokerage fee. Online brokers can afford to do that for their lower maintenance costs.
