Understanding Stock Broker Lingo, Flat Fee Trades

Blain Reinkensmeyer

Posted on Wed 20th Jun, 2007 11:11:21 PM

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I should have explained this in my post of the top 5 online stock brokers, but now that I am writing about it, a full post should be dedicated to what are called “Flat Fee Trades”. What the heck are they and what does it mean to you as a online stock trader?

What Are Flat Fee Trades?

Flat fee trades are a huge benefit to all of us that trade stocks online, and are only really offered by the big players in the online brokers industry. When your broker offers flat fee trades, that means whatever they SAY they charge per trade, they CHARGE per trade. So, regardless if you are buying or selling stock, and it can be any order type:

• market orders
• limit order
• stop orders
• stop limit orders
• trailing stop orders

It doesn’t matter if you are trading 100 shares or 100,000 shares in a single order, that order will only cost you whatever there flat fee trades. Penny stocks? No problem, still only the flat fee per trade.

Bottom line: You will not be scammed with flat fee trades. They are the best way to trade online. simple as that.

How Other Brokers Scam You

What about the brokers that don’t offer flat fee trades? If you trade with a smaller, not well known broker, most likely not you are under some pretty intense restrictions and hidden fees you didn’t even know existed.

You think that it is some gift from heaven to only pay $3 a trade, or $5.99 for market orders. Sorry, guess again. Someone has to tell you the truth, and here it is: unless you see “Flat fee trades” somewhere, you are getting scammed, and potentially big time. That $3 trade could cost you literally up to $30 or worse even MORE for the same trade that would have cost you $7, $9.99, etc.

I spent a lot of time studying these scams, as I almost fell for them myself, and it still gets to me. Here are a few examples of how you get scammed by not using flat fee trades (prices hypothetical but relative to what some brokers actually charge):

• All trades OVER $3 cost $5 per trade, and any order under $3 costs $5 per trade + $.002 x number of shares. (this means a 10,000 share order of a $1 stock would cost you $25, not $5 to buy AND sell)
• All market orders are $4, but any limit and stop orders cost $4 + $10 per trade
• All orders are $5 for maximum 1,000 share order. Any larger order costs $5 + $.003 x number of shares

I could go on all day, and this only lead to me to the core of what I believe now when it comes to choosing an online broker, “The bigger the broker, the better the broker. There is a reason why they are worth billions, and it is because they offer 10x more than the smaller competitor.”