Smart Investing Means Using Flat Fee Trades

The best online stock brokers don't always have to have cheap trade commissions. A lot goes into providing a well rounded service which can make even $19.99 trades a worthwhile price to pay. Regardless of what price is paid though one important factor must always be taken advantage of, flat fee trades.

When trading stocks online always make sure to choose a broker that offers only flat fee trades.

Flat fee trades are commissions that remain the same regardless of what stock order the investor uses or size of the order that is being placed. This means that a 5,000 share limit buy order of a stock trading at $.50 has the same commission rate as a 100 share market order of a stock trading at $100.

Some well known brokers that offer flat fee trade commissions are TD Ameritrade, Scottrade, Etrade, Zecco, and TradeKing. The trend to offer flat fee trade commissions is becoming increasingly popular and typically the only brokers that don't offer a flat rate are the smaller less known brokers.

How Other Brokers Scam Investors

Most of the time investors only see the base price per order advertised and think they have a great deal on their hands. It is only after placing their first few stock trades online and they receive their statement that they were charged more than what they originally thought.

Here are a few examples of how investors can get scammed by not utilizing flat fee trades (prices hypothetical but relative to what some brokers actually charge):

  1. 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 $25, not $5.
  2. All market orders are $4, but any limit and stop orders cost $4 + $9.99 per trade - A limit or stop order would cost $13.99 in this case, not $4.
  3. All orders are $6.99 for maximum 100 share order. Any larger order costs $6.99 + $.003 x number of shares, add $9.99 per stop or limit order - A 2,000 share stop order in this case would cost $22.98, not $6.99.

While these types of scams are becoming less and less common as the industry progresses it is important for investors to really look into every offer before diving in. When stock trading online always use flat fee trades.

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Comments

  1. Posted by Brandon on September 17, 2008 at 12:01 pm

    Excellent reiteration of this super important point Blain

  2. Posted by The Stock Speculator on September 17, 2008 at 12:12 pm

    Nicely done. Think or Swim allows you to choose between per share commission with a minimum of $5 per trade OR Flat Fee Trading up to 5,000 shares at $9.95.

    Also, you should negotiate with your broker for the best price available, not just what they advertise. Make sure during this conversation that you iron out the details for stops and limits to name a couple.

    If you are an active trader, these costs add up. If you are a newbie with a smaller account, these costs can have a major (read negative) impact on your returns.

    I believe you need to treat trading as a business. All expenses must be managed for the best return possible. Save enough dimes, you get dollars.