Stockbrokers don’t work for free…which is why every time you make a trade via a broker, such as buying or selling stock in a company that’s listed on the Australian Stock Exchange (ASX), you will pay a fee to the stockbroker. These are commonly known as brokerage fees, and they turn out to be one of the most important factors determining whether you make or lose money on your share trading portfolios. Not surprisingly they are also one of the most important things to look at when you are comparing different online trading providers.

Brokerage fees vary widely between online trading providers. For example, for “casual investors” (meaning online traders who typically trade 10 times per year, with an average transaction of around $10,000), the most recent Canstar Cannex Star Ratings review of online traders awarded a 5-star rating to four providers – Bell Direct, CMC Markets, Commsec, and Westpac. Despite these all receiving the top Star Rating, their brokerage fees were very different – ranging from $9.90 per trade with CMC to $19.95 from Commsec and Westpac.

Most online trading providers charge a brokerage fee based on the size of the trade, generally meaning the dollar amount of the trade. Fees are often “tiered” so that they change at different dollar amounts. For example, CommSec’s Share trades Internet Preferred product charges $19.95 per trade up to a transaction value of $10,000, then a fee of $29.95 for transactions up to $25,000. But above $25,000, the brokerage fees move to a percentage value of the trade – in this case, 0.12%.

Some providers offer a different form of tiering based on the number of trades you do per month, while others offer a mixture – the brokerage fees based on both the volume of trades AND their value. For example, etrade Australia offers one set of brokerage fees for your first trade each month, with the fee changing depending on the dollar value of the trade. For your second and subsequent trades each month, there’s a different fee structure.

When you’re comparing brokerage fees, you need to factor in your “average trading behaviour” – meaning the dollar value of your trades, and how often you trade. A $15 brokerage fee at one provider might look more expensive than a $9 fee at another – but if the former gives you discounts based on more frequent or higher value trades, and this matches the way you happen to trade stocks, then the higher provider (on paper) might actually turn out to be cheaper in the long run. Many of the providers offer comparison tables that allow you to check costs – but remember most of these tables will be based on trading scenarios that are most favourable to their products!

Brokerage fees aren’t the only factor you should consider when comparing online trading providers – for example, research and other tools that match your trading needs and experience level are also important. But comparing these fees can make a big difference in the ultimate cost of your online trading experience.

See all Online Trading News