Share Trading

Share Trading & The Hidden Costs

The majority of investments carry a fee – these are businesses after all. Banks for instance charge a slew of fees for managing your money, and the same is applicable to insurance houses. By commanding a fee, these institutions can carry on operating while also providing their services to you. The act of charging a fee is pretty much part and parcel of the world of business and commerce.  Surely there must be a way to circumvent such costs or at the very least to lower them?  Before we examine how you could lower your share trading costs, lets’ first take a look at some of the common fees associated with investing.

Brokerage fees

Many financial organisations including financial institutions, real estate houses and brokerage firms insist upon brokerage fees and for a number of reasons.  Typically, the fee is annual and covers maintenance costs, research costs, subscriptions and access to special and/or niche investment platforms.  Such fees might also be used to cover the costs of maintaining dormant accounts.

Brokerage fees

Investment consultants and brokers usually charge their clients a commission or consultation fee for services rendered. Such fees are also referred to as trading fees.  In other words the client pays for investment advice and if the sale or purchase of stock, options or commodities needs to be executed. No commission fees are created equal and thus such fees can vary from one firm to another. Thus it is advisable to first inquire about the brokerage fees before making any commitments.

Advisory/management fees

Advisory and management fees are one and the same and are charged by companies that run investment funds.  Due to their expertise, fund managers are well-compensated. Compensation is based on a percentage of the assets being managed.

Trading expenses

When it comes to commissions and fee structures, there is no universal system. Some brokerages or investment firms will make command sizeable fees while others will charge a nominal fee. It all comes down to the level of service being provided.  You could pay as little as $10 for a standard share trade or you could pay $100 because you used a full-service broker to execute the trade.  How much you invest often dictates the fee you’ll incur. Brokerages tend to work with a percentage ratio, hence the more you invest, the more you’ll pay in fees. So the question that then arises is, how to side-step these kinds of costs and fees?

Move to spread betting

Spread betting and indices trading, both a form of speculation is a sure-fire way to side-step typical brokerage fees. You’ll never escape fees in their entirety, but you can mitigate your situation by opting to go down a different type of financial investment avenue. It’s not hard to encounter affordable and profitable indices trading; the information superhighway is peppered with online broker firms that can facilitate trading on the price movements of indices. For instance, you wouldn’t have to invest in a company listed on the FTSE 100. Instead you could just estimate to what extent it will rise or fall.  All of this comes back to spread betting, which works in pips. Pips are assigned a specific value and depending on which broker you use the pips could be as little as $1. The extent of the spread, which is the time that elapses between the buying or selling of a position or asset (the estimation thereof) dictates the fee that the broker gets.

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About the Author

Josh Morgan

Josh Morgan is CouponAnnie's Contributing Writer. He lives life on the cheap, but that doesn't mean a boring existence. Josh loves helping people focus on frugality without giving up the things they enjoy. When he's not getting deals, he's probably drawing or writing something amazing.