How to Compare Online Brokers’ Commissions

compare online stock broker

Compare Online Stock Brokers

Are you trying to economize on your trading commissions by considering a new online broker? If that is the case then you will need to sit down and compare online stock brokers plans in a practical way. This is how I’d do the maths :

I might start with my trading results from 2009. I’d be looking at my profit & loss numbers for the year, and what I paid in commissions. Shall we say my profit for the year was $20,000, and I paid $1000 in commissions on 100 stock trades ( $10 per trade ). Note : I’m using round numbers here to keep it straightforward.

If potential new online broker X charges $8 a trade – I’d save $2 a trade times, a hundred trades. That is $200. But is it enough to move the needle? In fact, that would improve my profits for the year by just 1 percent ( $200 divided by $20,000 ). That is not worth switching for – unless you are experiencing customer-service hassles.

On the other hand, if you make one thousand trades a year and could save $5 a trade, you’d save $5,000. That might feed a family for a year And if you are a megatrader moving thousands of trades a month, the savings could go into the 6 figures. There are more issues to think about, like execution quality.

Will your trades be finished in an expedient fashion at the absolute best prices? This is a difficult issue to work out, particularly when it comes to highly-liquid markets like securities where orders can be placed and filled in the blinking of an eye.

If you never get price improvement, then you can do better some place else. So how can you work out the potential effect of bad executions? Here’s one way, even tho a coarse one :

Take your trading results for 2009, and take away a minuscule amount – 0.2% or less. Then, at random select a couple of your trades from 2009, and do the following to your profit or loss on each : hurt your results by five percent.

Either add five pc to your loss or cut back your profit by five pc. This is meant to reproduce the impact of the broker not having the ability to get your most critical trades done during busy periods.

Take these numbers, and factor them into your guesses on how a new online broker impacts your PL. If you would save $300 on commissions with a probable $50 unwanted impact on the execution side, you actually have no reason to change unless you are discontented with shopper service, or are getting hit with silly service charges.

Leave a Reply