Understand The Formula Of Brokerage Fees

If you are a novice online trader or may be a bit experienced one, but a little basic knowledge about all trading terms is highly important. Here, we are putting alight over Brokerage Fees.

What exactly is a brokerage fee?

It is a fee charged by an individual agent or may be agent’s firm to conduct hassle-free transactions between the buyers and sellers. Similarly, a broker charges his brokerage fees for his service offerings like sales, purchase, advice over market and transactions, delivery as well as negotiations.

How many types of brokerage firms are there?

The answer to this commonly asked question is two. There are two different types of brokerage firms:

  1. Full Service Brokers
  2. Discount Stock Brokers

There is a noticeable difference between both the types of firms and their fees.

Let us understand each type in further detail:

  1. Full Service Brokers

They are ones who need to paid commission based on each transaction. Now, what are you paying for is simple? The broker does all the research work, gives you advice on thecurrent market, helps to build your good portfolio, manages your purchase and sales etc. There are even few full service brokers who charge annual fees in one shot between 1% and 1.5 % of total assets which he managed for you. No transaction fees have to be paid.

Who should choose Full Service Brokers?

  • One who doesn’t want to trade on their own
  • One who doen’t want to research much
  • One who wishes to have a great portfolio managed by a third entity.
  1. Discount Brokers

Such discount brokers never offer any investment based advice. Discount brokers charge a minimal brokerage fee which is even getting low day by day to attract a number of clients and thus have a market share. Some firms even offer free trading schemes.

With discount brokers, you as an investor need to be attentive and hence keep track of industry trends. The main thumb rule which you need to keep in mind is If the broader market is hot selling, then revenue growth will help you drive stock price to appreciate. It the broader market is cold, strong balance sheet and net income growth will be the major key to success.

Who should choose Discount Brokers?

  • People who can very well do their research on stocks and trends.
  • They are independent beings who have good experience in trading
  • They have enough time to keep a track on their own share portfolio

Conclusion:

Always make a smart choice after self introspection of your skills. If your trading insights are good enough along with good internet browsing abilities, you can yourself become directly active over online broker websites. You can hence become a trader choosing an appropriate broker over you to guide on every step. If you are willing to do homework, nothing can beat the benefits of working with discount brokers. But if you need a support system to work for you and guide on transactions to judge right and wrong, then you actually need to associate with full service providing broker firms.

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