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What are brokerage fees and why to compare them?

What are brokerage fees and why to compare them?

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 Securities Exchange (ASX), you will pay a fee to the stockbroker.

These fees are commonly known as brokerage fees and they can turn out to be one of the most important factors in determining whether you make or lose money on your share trading portfolios. 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.

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. Some providers offer different forms 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.

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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 $28 brokerage fee at one provider might look more expensive than a $19 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.

It’s also helpful to work out what your investment goals are before you start investing, such as:

  • Can you afford to take risks with your investments?
  • Are you looking for growth, income or a mix of both?
  • Do you want to invest in a particular industry, product or service? 
  • How long are you planning to invest for? Is this a short quick win or are you playing the long game?
  • How will market volatiity affect you and your investment plan?
  • How much time do you have to research your investments? 

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