Commissions, Costs, and Fees

Looking for a broker with low commissions? You should
always try to get the most for your money, but a broker’s
advertised commissions may not tell the whole story.

Questioning the advertised commission

Sometimes you’ll see a broker advertise a “flat-rate” commission
or “commissions starting at” a certain amount.

You need to make sure when you’re comparing commissions
that you’re comparing apples to apples. Make sure that you
ask whether advertised commissions change based on the
following:

n The type of order placed: Commissions may vary
depending on whether you’re placing a market or a limit
order. A market order directs your broker to buy or sell
shares at the best market price currently available. A limit
order directs the broker to buy or sell shares only at a
specified maximum or minimum price. Brokers may
charge a higher commission for executing a limit order,
but only advertise the lower fee they charge for a market
order.

n The kind of securities you’re buying: Sometimes
brokers charge a higher commission for buying or selling
an over-the-counter stock as opposed to a listed
stock. A listed stock is one that is traded on a major stock
exchange — such as the American Stock Exchange or the
New York Stock Exchange. A stock that isn’t listed is
called an over-the-counter stock. NASDAQ is the leading
market for over-the-counter stocks. (Most investors
afford NASDAQ stocks the same status and prestige as
stocks listed on exchanges.)

n How many shares you’re buying or selling at one
time: An advertised “flat-rate” commission may be good
only up to a certain number of shares. Find out how
many shares you can buy or sell before a surcharge
applies to the flat rate.

Looking for hidden fees and costs

You may think that commissions are the only costs involved
with online trading. Unfortunately, this isn’t the case. Several
types of hidden costs can nibble away at your investment
profits.

Here are a few fees to watch for, when opening an account,
all considerations being equal:

n Fees to close the account: Some brokerages charge a fee
of $50 or more to close an active account.

n Charges for a copy of your statement: If you need a
copy of a prior month’s statement that isn’t online or
simply would like to receive your statements in the mail,
you can be charged up to $10 per page.

n Charges for transferring funds to or from your
account: If you need access to the funds in your account
or plan to purchase additional securities by wiring funds,
you should inquire about any associated charges for these
types of transactions.