Brokerage fees are the fees that an online broker will charge you for every trade you make using their platform; a purchase or a sale of shares, for example.
You will generally see brokerage fees shown as a dollar amount per trade for example, $19.95 is a typical fee that is charged. The importance of brokerage fees in determining how profitable your online investing experience is should not be underestimated. If you buy 100 shares at $5 each, then sell them for $10 each, on paper you’ve made $500 profit before tax, but remember you will be paying brokerage fees for both trades, both the purchase and the sale. It’s possible you might end up with only $460 profit because of the brokerage fees. The more you trade, the more important brokerage fees will become. You might want to start looking at brokerage fees as a percentage of your overall trade value, to see whether a lower fee account might be a better option.
Some online brokers will also charge monthly or ongoing fees, but many waive these fees if you trade more than a certain amount. While brokerage fees are important, they’re not the only basis on which you should choose an online broker. Taking an account with the lowest brokerage fees, but minimal research or other tools, may end up costing you more in the long run. You should always compare all the fees and features of a platform, not just the brokerage fees, to make an informed decision about which online broker will get your business.