What Is Brokerage: Stocks, Trading 101, Fees, & Minimum


If you are considering investing in stocks, Brokerage is a word you will come across sooner or later.

That is why we will go through exactly what this concept means and explain exactly how it is used in stock trading.

So, what is brokerage?

Simply put, brokerage is a fee you pay when trading securities. This fee varies slightly depending on a variety of factors. Every time you buy a stock, a fund or another security, you must use one of the brokers. It is this fee that allows brokers to make money and that allows them to continue with their job.

Before you complete the deal, you should receive a preliminary amount for your brokerage, which gives you an idea of what it will cost.

There are several different types of brokerage and which one is best for you depends on the situation.

What is fixed brokerage?

A fixed commission is a fee that is the same no matter how much money you buy shares for.

In other words, if you trade with a fixed brokerage, it costs as much to buy shares for $100 as it does to buy shares for $100,000.

Fixed commissions are usually a good choice for savers who make big deals worth a lot of money. It is rarely a good option for small savers.

Variable brokerage

A variable brokerage is a brokerage that varies depending on the amount in question. It is usually taken as a percentage of the amount you want to trade for.

This can work best if you trade with smaller amounts because a fixed brokerage then usually becomes more expensive.

Keep in mind, however, that many brokers have a minimum fee.

So you can not get away with it cheaply.

Brokerage drops

When there were only a few players in the market, these players could take what they wanted in brokerage, people had nothing good anyway.

Now, however, there are many players and brokerage had begun to decline more and more.

It is possible that in the future we will see a market where brokerage is more or less completely gone and brokers will find another way to make money.

What is minimum brokerage?

A minimum brokerage is the minimum fee you can pay at a broker no matter how small a deal you make.

It does not matter if you only shop for $1. You still have to pay the minimum fee.

The size of the minimum fee can vary between different online brokers and different account types. It is very important that you always check the minimum fee before signing up for a particular account type with a broker.

Small savers should often choose an online broker with as low a minimum commission as possible.

Who determines the size of the commission?

It is up to the broker to decide how much commission they want to charge for their services.

However, they must clearly inform the customer about the size of their brokerage and may not change their brokerage without announcing this change to their customers. This can be done by changing the information on their website.

A reputable broker will also send a message to their clients to inform their clients about the new fee structure.

How to pay as little as possible in brokerage

Of course you want to pay as little as possible in brokerage. Fortunately for you, there are now several good brokers on the internet with really low fees.

Different brokers are forced to compete with each other to attract customers, which means that commissions start to fall.

There are several different sites online where you can easily compare different brokers and find the one that suits you best.

Just keep in mind that the one that offers the lowest brokerage is not necessarily the best. Look at the range of stocks, mutual funds and other securities before making your choice of broker.

The last thing I can recommend to reduce what you pay in brokerage is to be loyal to the same broker.

This can often lead to various special offers that make you get away cheaper.

In short, it can be said that brokerage exists for brokers to make money. They need a salary, just like you and me.

Therefore, do not get annoyed by this fee, instead see the positive in the fact that you via the internet and a good broker have access to shares from all over the world.

When is the brokerage deducted?

The brokerage, ie the cost of buying and selling shares, is deducted from your available money in your share account during the night.

Many beginners often make the mistake of investing all their money that they have available in their share account without leaving a few pennies left for the brokerage fee that is deducted during the night.

This can lead to you owing the bank money and then they may demand interest from you.

If you do not have money in your share account during the night when the commission (the cost of trading shares) is to be deducted, you will have to pay interest on debt to your stockbroker.

If you notice that you have to pay debt interest, it is strongly recommended to deposit money in your share account immediately to avoid paying interest fees to your stockbroker.

How do I know how much I paid in brokerage?

You will find how much you paid in brokerage on the business note generated at your share purchase.

This can also be called a transaction note which you will find under “My Transactions” at your stockbroker.

Your transaction note states how much money you have invested in the share and how much in brokerage you have paid for your share transaction.

On the business note, you should also be able to see how much money you paid in brokerage through the brokerage class you have chosen at your stockbroker.

Conclusion

Thinking about buying stocks? Then check out this video I found on Youtube:

Sources

https://www.annualreviews.org/doi/abs/10.1146/annurev-soc-081309-150054

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https://www.jstor.org/stable/270949

Kevin

This article has been reviewed by our editorial board and has been approved for publication in accordance with our editorial policies.

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