Loans5 Things You Should Know About Choosing a Brokerage Account
When people look for brokerage accounts the first thing they look for is the trading fees, e.g. $7 per trade of £11.95 per trade, as this is the first thing advertised by brokers. However I feel there are 5 other things you need to look out for when choosing a brokerage account...
1. Inactivity fees
Brokers charge inactivity fees. These are applied if you don't make a certain number of trades in a month (often around 10). The brokers that charge these normally have very low trading fees.
These fees can be around $20 a month and if you just want to put $2,000 into one stock for the long term (1yr+), then you will be charged $240 during the year, which means you will have to make a 24% profit on the stock just to break even!!
2. Interest rates paid to your account
It is vital that you pick a brokerage account that offers competitive interest rates on your money!! Think of the amount of time that you are not using 100% of your account, you could be earning interest on this money! Lets put that in an example;
-- Interest rate is 5%
-- You have capital of $60,000, $40,000 is in stock, this means $20,000 left over in your account.
-- Over the year you could be earning an extra $1,000 in interest!
-- And the best thing is that interest goes down as capital gains and you don't have to declare it as part of your income.
3. Market data fees
If you want to trade stocks in several different countries then you need to look at the data fees each broker charges for different countries. Brokers will allow you free data feeds for the country you choose to trade in but may charge you for data from abroad. The fees really do vary and if you choose to trade in 3 countries then you could easily be paying over $40 a month or more to do this.
4. Withdrawal fees
Brokers charge you to take out your money if you withdraw more than once a month. This could potentially be a problem if you have a small to medium starting capital and are looking for a regular income stream , which means you will often need to take out cash more than once a month. This will consequently cut into your profits.
5. What platform the brokers use
It is important to view the trading platform brokers use, some allow you to trade from their website and some offer Java based trading platforms or something alike. This is especially important if you are not computer literate as you may find some java based platforms hard to use and could end up executing wrong or inaccurate trades! It is best to view a demo of the brokers trading platform before signing up for an account (there will be a link to a demo on most brokers' websites).
So to summarise, it is not just the trading fees you should look out for when choosing a broker as there are several other fees that dig into your profits.
Final tip - have a strategy and know how much you are going to trade in a year and then choose a brokerage account that suits your strategy.