Broker VS Trader?

How Brokerage Fees Work In Trading

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Brokerage fee definition

Customers have to pay fees to their brokers for the services they use.

For example:

  • Insurance brokers may take a percentage of a policy premium as commission, while a mortgage broker can claim a valuation fee to check if a property is worth the amount the client wants to borrow. And in the case of trading, traders also have to pay to use certain services.

However, not all brokers will demand the same fees. That’s why it’s crucial you understand and compare costs to make sure you’re not denting your returns by paying more than you need to.

Brokerage fees in brief

Brokers charge for effectively acting as your middleman when you trade. These vary from broker to broker and also depend on the market you’re trading.

Although these costs were pretty expensive back when the technology and market access weren’t so great, the digital revolution of the industry now means brokerage fees are very competitive.

Many of these charges are entirely transparent and fair but some brokers will significantly widen the costs to trade to cover other services they offer — often things customers would never expect to have a price tag. As they won’t charge you directly for these individual features, you could be unwittingly paying over the odds for services you don’t use, and maybe don’t even understand.

Common ways brokers make money:

Spreads

The spread is the difference between the buy and sell prices of a trade, and the smaller the spread, the lower your trading costs.

Some brokers use variable spreads which can become significantly wider when markets become volatile. However, all the Trade Nation spreads are low and fixed regardless of any market volatility.

Brokers may also profit in other ways...

Brokers can (and will) trade against you

There always needs to be a buyer and a seller for a trade to take place. And as it’s not possible for a broker to send every trade they receive to the underlying market, they may take the opposite side of your trade instead. This means they lose if you win, but also means they could profit from your losses.

However, as brokers have thousands of clients placing trades all day, it’s more likely that your trade will be matched with another trader who has a different view to you. Or if a broker receives a stream of orders in one direction, they may offset their risk by going to the underlying market and placing the same buy or sell trade. Someone else in the world will counteract it, and one party will win while the other loses.

In all circumstances, the most important thing is that everyone plays by the same rules. This is why it’s essential that you research the broker you want to use and make sure they have high-quality regulation, are committed to treating clients fairly, and are transparent with their charges and practices.

Some brokers charge for education material, tools and customer service

  • Pay to play?

Many increase trading fees to effectively charge customers for access to learning materials, tools, and even customer service.

While content like this may be very good, the costs to use it could quickly add up — especially if you’re a beginner trader and there’s still a lot to get your head round. Using a broker like this could mean any returns could be seriously reduced while you’re striving to improve.

  • At Trade Nation, we’re on a mission to make trading accessible to all

We provide a wide range of free resources to educate our community and enable them to become better traders. Sadly, the same can’t be said of all brokers.

How does Trade Nation make money?

We want our traders to have the fairest possible trading experience, which is why we charge minimal brokerage fees and are fully transparent about what these are.

Our profits come from the spread, and the overnight interest we charge for lending you the money you need to trade on margin. That’s it!

Trading with us means you’ll always know how much you’re paying to trade with us, with no surprise extra fees. If you have any questions about these costs, get in touch and we’re more than happy to answer them.

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We’re challenging industry standards to give you a better trading experience. Here’s how:

We use alternative data

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We communicate our costs

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Financial spread trading comes with a high risk of losing money rapidly due to leverage. You should consider whether you understand how spread trading works and whether you can afford to take the high risk of losing your money.