What are Brokerage Fees? Fees, Commissions & Charges Explained
The impact of brokerage fees on a trader's profitability is often overlooked. There are a variety of trading fees to take into consideration which differ from broker to broker. Even with the same broker, online stock trading fees may differ from Forex trading fees which may differ from gold trading fees.
In this 'What are Brokerage Fees?' article, we go through what a brokerage fee is, the different types you need to be aware of and how to find the best brokerage fees for your own needs.
Table of Contents
- What are Brokerage Fees?
- Different Types of Broker Fees Explained
- Forex Brokerage Fees
- Stock Brokerage Fees for Share CFDs
- Share Dealing Fees for Investing in Shares and ETFs
- How does a Broker Make Money?
- What Are Typical Brokerage Fees?
- Brokerage Fees Comparison
- Why Trade with Admirals
- FAQs on Brokerage Fees
What are Brokerage Fees?
What is a brokerage fee? A brokerage fee is a cost your broker will charge you to use their services as a middleman and put your trades through to other buyers and sellers in the market. When buying or selling on a particular financial market there are costs involved in doing so. These costs are known as broker fees or brokerage commissions.
The amount you pay in brokerage fees will vary among brokers, as well as between different asset classes. Historically, brokerage fees were quite high due to inferior technology and the difficulty in accessing markets. However, the internet and new technology have revolutionised the industry, making the brokerage field highly competitive and giving individuals, like you, some of the lowest trading fees in history.
This then gave birth to discount brokerage firms. A discount brokerage is a stock broking firm that allows you to place your orders online, thereby offering you much cheaper fees to trade. As you pay a broker fee or commission on the buying and selling of a financial instrument, using the right broker is essential when investing in low-cost stocks.
Unfortunately, not all brokers are equal and some have much higher fees than others as you'll see in the next section!
Different Types of Broker Fees Explained
Below is a list of some of the typical trading fees to be aware of. Not all brokers will charge a fee for a particular service or product; some will be higher or lower than others. There may be some other additional or hidden fees that are unique to a broker so it is worthwhile checking the broker's terms and conditions to be sure.
The different broker fees you need to be aware of:
The most common type of brokerage fee is the trading spread of an asset class. The spread is the difference in value between the buy price (ask price) and the sell price (bid price) of an asset. Trading spreads are also known as bid-ask spreads and they vary greatly between brokers and asset classes.
You can view the spreads of different trading instruments through your broker's trading platform. For example, in the Admirals MetaTrader trading platform you can view the bid and ask prices of different asset classes through the Market Watch window (Ctrl+M):
On top of the spread, there may be an additional brokerage commission or trading commission due on each transaction undertaken. For example, many brokers offer Forex ECN (Electronic Communication Network) and STP (Straight Through Processing) trading accounts where individuals can trade directly with the broker's liquidity provider (usually top-tier banks). This allows users to get the lowest trading spreads possible.
This will usually come with additional fees per transaction undertaken. For example, with the Zero.MT4 and Zero.MT5 account which offers ECN-style trading capabilities, the commission per 1 lot traded (100,000 units of currency) can be between $1.8 and $3.0. However, the benefit of this is that Zero.MT4 account spreads start from 0 pips.
For a traditional type of Forex account, such as a Trade.MT4 account, Forex trading is actually commission-free, with only spreads and swaps payable. CFDs (contracts for difference) on shares and ETFs (exchange-traded funds), meanwhile, are charged a commission of a percentage of the total value of shares being traded or per share being traded. More details can be found in the Online Stock Trading Fees section further down the article.
Swap trading fees are applicable to traders who hold positions overnight, or roll over a buy or sell position from one trading day to the next. The swap trading fee is an interest fee that is either debited or credited to you at the end of each trading day. Swap rates can be found on the Admirals Contract Specification page under the market symbol you are trading.
Swap trading fees are calculated differently depending on which market is being traded and are discussed in more detail in the Forex Trading Fees and Online Stock Trading Fees sections further down this article.
Other Brokerage Fees
While the broker fee is the main cost of trading financial markets, there may be some additional expenses to consider, depending on your broker. These include:
Real-time data feeds
To access the real-time data of a financial market, the corresponding exchange charges a fee for it, which brokers may pass on to their users. For example, obtaining real-time prices of shares with certain banks will have an associated cost per stock exchange that the user requires access to.
So, to access the live prices of stocks listed on the New York Stock Exchange will cost $7 per month, the Nasdaq Stock Exchange another $7 per month, the London Stock Exchange £7 per month, the Deutsche Bőrse Exchange €7 per month and so on. The monthly fees can add up quite quickly!
Fortunately, all accounts with Admirals offer real-time data broker fees meaning you can view live, up-to-date prices of all global markets offered.
Account maintenance fees
There are some brokers and investment houses that will charge a fee for possessing an account with them. After all, the maintenance of their platform, customer service support, regulations, and staff members will all incur expenses. The question is whether or not they will pass it on to you.
For example, some institutions charge £1.80 per month as a fixed account admin fee, whereas some banks charge a minimum of £4 per month if you have cash in their account, or if you have an open investment. Again, these monthly fees can start to add up - even when you are not using the account. If you are considering trading with Admirals you might be pleased to know that there are €0 account maintenance fees and €0 custody fees.
Analysing the chart of a stock price can help with identifying patterns and signals for time stock purchases. The maintenance and stability of a state-of-the-art trading platform can be expensive, and some brokers will pass on the cost to the user. Fortunately, Invest.MT5 account holders receive all of the above completely free.
Many brokers will charge for these additional features, which can eat into your investment returns and turn low-cost stocks into expensive ones. After opening an account you can access some of the lowest costs of investing with a suite of complementary features and support for supercharging your investing process.
Inactivity Trading Fees
Nowadays, many brokers will charge a monthly inactivity fee. For Admiral Markets' clients who have not made any transactions for the previous 24 months and have a positive balance on their trading account, this will amount to 10 EUR per month.
Currency Conversion Broker Fees
Brokers will often charge a currency conversion fee if you are trading instruments that are priced in a currency different from your base account currency. For Admiral Markets' clients, internal transfers between separate trading accounts with different base currencies are subject to a fee of 1% of the total amount.
Withdrawal Brokerage Fees
While many brokers offer commission-free deposits, most will charge some type of withdrawal fee. This will vary based on the withdrawal method and amount. Clients of Admirals receive one free withdrawal request every month via bank transfer.
Now you know more about brokerage fees, let's have a look at a few examples of how to calculate trading fees for specific markets.
Forex Brokerage Fees
Forex trading fees will vary depending on the type of account your broker offers. For example, the Admirals Trade.MT4 and Trade.MT5 accounts allow you to trade Forex commission-free with low spreads. The Zero.MT4 and Zero.MT5 accounts allow you to trade Forex directly with the broker's liquidity providers (usually top-tier banks) to receive even lower spreads (from 0 pips) but with a commission per lot traded per transaction. There are also swap trading fees for both types of accounts.
Learn more about the different account types in the Forex trading account section.
What is a Forex spread?
Forex trading spreads can be calculated by opening up the Admirals MetaTrader platform and pressing F9 on the symbol you want to trade. This will then open up a trading ticket which will have the bid price and ask price.
Trading spreads can be calculated by subtracting the ask price from the bid price. In the trading ticket above for AUD.CAD this would be 0.00024 (0.90956 - 0.90932). As a one-pip movement in AUD.CAD is 0.0001, the spread above is 2.4 pips. If the market moves 2.4 pips in your chosen direction then you are at a 'break-even' level as you have now covered the spread value. Anything beyond 2.4 pips is potential profit, as long as it is in your trade direction.
What are Forex swap fees?
Forex swap trading fees can be found directly in the Admirals MetaTrader platform. In the Market Watch section (Ctrl+M), users simply need to right-click on the instrument they are interested in and then select Specification which will open up a Description window with the Swap Long and Swap Short values.
A Forex swap is the interest rate differential between the two currencies you are trading. When trading Forex on margin, you receive interest on your long positions and pay interest on your short positions. The difference in these values is known as the carry.
A positive carry means you receive more in interest than you need to pay in interest, which will be credited to your trading account. A negative carry means you pay more interest than you receive which will be debited from your trading account. However, if you open and close a trade on the same day, there is no carry to pay.
For example, in the contract specification screenshot of EUR/USD below, the line SWAP Value (Short) reads 0.07 pips, meaning traders would be credited 0.07 pips worth of their contract size per pip for holding a trade open overnight. Traders who hold a long trade open overnight will have to pay 0.842 pips to do so which would be debited from the trading account.
What are commission fees?
While Forex trading on the Trade.MT4 and Trade.MT5 accounts are free of additional commission fees, the Zero.MT4 and Zero.MT5 accounts are commission-based per transaction, which is common across most brokers who offer Forex ECN trading directly with the broker's liquidity providers.
While the trading fees vary from broker to broker, they are mostly calculated in the same way. Let's look at an example using the Zero.MT4 account fees.
To work out the commission for a round turn trade (this includes the opening and closing of a trade, where both are charged at the opening of a trade), the following formula is used:
Commission (in the account currency) = Contract size * Commission rate (in the account currency) * 2
So, if a trader bought 1 lot of AUD.CAD in a EUR-denominated account the commission a Zero.MT4 or Zero.MT5 account would be 5.2 EUR (1 Lot * 2.6 EUR *2).
If the trader then decided to buy 2 lots of AUD.CAD in a USD-denominated account the commission would be 12 USD (2 * 3.0 USD * 2).
Want to learn more about trading the market? Check out the free Zero to Hero trading course today!
Stock Brokerage Fees for Share CFDs
As Stock CFD trading allows users to trade on margin there are swap fees to hold trades open overnight, as well as trading spreads. Both swap values and typical spread information can be found in the Admirals MetaTrader platform or through the contract specification page.
The swap trading fees for Stock CFDs are calculated differently to the Forex market and are quoted in percentages, as the example of the Apple CFD contract specification page shows below. There are also transaction fees to take into consideration when trading Stock CFDs. For example, the commission for share CFDs start from $0.02. To view the commission for the share CFD you are trading simply visit the instrument you are trading in the contract specification page.
Share Dealing Fees for Investing in Shares and ETFs
There are some similarities in the cost of investing in shares and ETFs with Invest.MT5 compared to trading share CFDs with Trade.MT5. For example, when investing in shares there are still trading spreads and trading commissions per transaction to pay.
However, when investing in shares the investor needs to pay the full value of the shares they are buying up front. As this type of investing does not use margin or leverage, there are no overnight swap fees to pay. The Admirals contract specification page details all the brokerage fees you need to know about.
Admirals Investing Commissions
Below is a list of the share investing commissions when using the Admirals Invest.MT5 account:
Stock & ETF Commissions
0.02 USD per share
How does a Broker Make Money?
Check out this video on how a broker makes money.
What Are Typical Brokerage Fees?
The first question to consider is whether a broker is a traditional bank, as this is how investors typically bought and sold shares (the most commonly traded and invested asset) in the past. Today, most banks offer share dealing services, but these usually come with high broker fees and other charges. However, the competition from discount brokerage firms has made the fees for investing much more competitive.
Brokerage Fees Comparison
Keeping track of brokerage fees across different asset classes and trading accounts may seem overwhelming. The best way to make an online trading fees comparison between different asset classes and accounts is to use the Admirals Trading Calculator, alongside your Admirals MetaTrader platform.
Your trading platform will give you real-time trading spreads information while the trading calculator can help you calculate your commission per transaction as well as the swap values for your trades.
For example, traders can select any of the instruments available to trade on with Admirals across Forex, Stocks, Commodities, Index CFDs and more, as shown below!
Traders can then type in their volume, or unit size as a lot amount, select their account base currency and type in their opening and closing price of their trade, as well as the direction. After clicking calculate the trader will be given the monetary profit and loss for the trade as well as the commission - if any is due - and the swap value for holding a trade overnight, as shown below:
While the example above is on EUR.AUD, traders can use this across multiple asset classes which have different commission and swap values as well as different formulas for calculation.
Why Trade with Admirals
On top of low spreads and competitive trading fees, there are other benefits to trading with Admirals:
- Trade with a well-established, highly regulated company including regulation from the highly respected UK's Financial Conduct Authority, the Australian Securities and Investments Commission, the Cyprus Securities and Exchange Commission, the Jordan Securities Commission and many others.
- Trade with a broker offering some of the lowest and transparent trading fees in the marketplace.
- Access the fastest and most secure trading platforms from MetaTrader for PC, Mac, Android and iOS.
- Trade with institutional grade spreads as low as 0 pips with Zero.MT4 and connect directly with tier-one liquidity providers.
- Enjoy commission-free trading on some trading accounts, or lower spreads plus commission on other trading accounts.
- Benefit from a negative balance protection policy for peace of mind.
If you're feeling inspired to start trading, or this article has provided some extra insight to your existing trading knowledge, you may be pleased to know that Admirals provides the ability to trade with Forex and CFDs on multiple asset classes, with the latest market updates and technical analysis.
FAQs on Brokerage Fees
What are brokerage fees?
Brokerage fees is what a broker will charge you for its services such as routing your order through the interbank market or to a stock exchange and possibly for research and trading platforms.
How are brokerage fees calculated?
Brokerage fees are calculated differently between products and markets. Trading stock investors may only pay fees such as spread and commission and account maintenance fees. CFD, or margin-based, traders will usually have to pay spreads, commissions and swap fees.
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or recommendation for any transactions in financial instruments. Charts for financial instruments in this article are for illustrative purposes. Past performance is not necessarily an indication of future performance.
Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.