Commissions and Fees
Online Broker Review 2011
What investors pay for trading stocks, options, ETFs, and mutual funds is one of the primary factors most investors take into consideration when choosing an online broker. Instead of focusing on just cost, though, we also took into account the fees that brokers charge: platform fees, specialty order-type fees, minimum fees, etc. These are important and applicable to a wide variety of investors and often overlooked until after the account has been opened.
The online broker that stood out among the rest as the best for discounted trading was OptionsHouse. The discount broker charges $3.95 for flat-rate trades, $9.95 for mutual funds, and options investors can choose to either buy up to 5 options contracts for $5, or pay $8.95, plus $.15 per contract. Its parent company, Peak6 Investments, has hundreds of millions of options contracts traded under its belt, and it leverages this expertise to deliver ultra-competitive commissions.
Other highly rated brokers in this category include Lightspeed, Interactive Brokers, TradeKing, MB Trading, Zecco, and SogoTrade. Lightspeed came in second with its tiered rate of $.00395 per share, but the broker also charges a minimum $1 per order for standard Web Trader clients, as well as a $.40 fee for any odd lots (i.e., 99 shares). The other alternative is paying a flat $4.50 per trade. Zecco offers $4.50 stock trades and up to 10 free trades per month for clients that have atleast a $25,000 balance or make 25 trades each month.
For investors that trade Exchange Traded Funds (ETFs), in 2010 the commission-free ETF was introduced as a way to offer further value to clients. ETFs are very similar to mutual funds except that they trade just like a stock and typically offer much lower yearly management fees. TD Ameritrade, Charles Schwab, and Fidelity are the leaders in this unique offering, with TD Ameritrade having the largest selection of more than 100 commission-free ETFs.
When conducting our research, we found that brokers who charge extra fees or hefty minimums consequently ended up costing more than the rest, even if their commissions were reasonable priced. Interactive Brokers’ commission structure is very competitive, but the additional fees, unfortunately, are not. The broker charges a maintenance fee if clients do not spend at least $10 in commissions per month, as well as a $10 fee per month for real-time quotes. The only way to waive both of these is to spend at least $30 in commissions each month. Similarly, optionsXpress charges its clients no base fee for options trades, however, they charge as high as a $14.95 minimum per options trade if the client is making less than 35 trades per quarter.
All in all, when it comes to commissions and fees, we find that the best commission offering is a clear and transparent one. The average investor does not have time to sift through pages of commission information, platform fees, maintenance fees, etc. (which our full broker reviews break down). Whether charging hefty minimums per trade or extra fees such as minimum activity fees, in the end it is another cost that reduces investment gains.