Comparing Brokerage Fees: How to Find Your Real Cost

How do "zero commission" brokers make money?

A commission is a fee for each order you place. In the US, many brokers now charge no commission to buy or sell US shares and ETFs. But a broker is a business, and it earns money in other ways.

• The spread. You buy at the higher ask price and sell at the lower bid price.
• Currency conversion. Changing your money into another currency to buy a foreign share often costs a fee or a worse exchange rate.
• Interest. A broker can earn interest on cash you leave uninvested, and it charges margin interest if you borrow from it.
• Other fees, such as an account fee, an inactivity fee or a transfer fee.

In the US, some trading firms also pay brokers for sending them customers' orders. This is called payment for order flow. The SEC, the US markets regulator, explains it on its page about how orders are executed. It also says your broker has a duty to seek the best execution reasonably available for your order: the best terms, including the price. Rules on this differ in other countries.

So the useful question is not "what is the commission?" It is "what will I pay in total, for the way I invest?"

What should you check on a fee schedule?

Every broker publishes a list of its charges, called a fee schedule. Save the one for your country and your type of account, and write down the date. The same brand can run different companies in different countries, with different prices.

The SEC's guide to fees and expenses explains both one-off charges and ongoing costs. Fund fees are covered in ETF vs mutual fund: which costs less.

Why does the size of your purchase matter?

Some fees are fixed, like $3 per order. Others are a percentage, like 1% of the amount you convert. A fixed fee hurts small purchases most. A percentage fee grows as your purchase grows.

Take two made-up brokers. You plan to buy a US share each month. Your account holds another currency, such as Canadian dollars, so each purchase needs a conversion.

• Broker A: no commission, but 1% to convert currency.
• Broker B: $3 commission per purchase, and 0.2% to convert.

All amounts are in your account's own currency.

Below $375 a purchase, Broker A costs less. Above $375, Broker B costs less. With 12 purchases of $500 a year, A costs $60 and B costs $48. So the cheaper broker depends on your habit, not on the advert.

Which costs are easy to miss or count twice?

Some costs never show up as a fee line. The spread is built into the price. A currency markup can be built into the exchange rate. If the rate you are quoted already includes the markup, don't subtract it a second time.

Keep the broker's charges and the fund's charges on separate lines. The same fund takes its own yearly fee whichever broker holds it. See the bid and ask lesson for a worked spread example.

Price the exit as well as the purchase: selling commission, currency conversion, cash withdrawals and transfers to another broker. If the account holds US dollars between trades, conversion may not happen every time. Check the cash rules before counting that cost.

Is the cheapest broker the best choice?

Not always. Cheap access to an investment you don't understand is not good value. Also check:

• that the firm is registered in your country (see the checks in how to start investing)
• how your shares are held, and what protection your country offers if the broker fails
• which order types and markets you can use
• how you can get help when something goes wrong

Before you click on an offer, write the company's legal name, your country, the account type and the date beside every fee. A low rate in a search result may belong to a different account from the one you can open.

Your finished worksheet should cover a normal month and an unusual event, such as moving your account. That is more useful than any "free trading" headline. To fill it in, start with the fee pages linked from our stock trading apps comparison. Next, learn how your order fills in market, limit and stop orders.