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Online Investing Hacks by Bonnie Biafore

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Pick the Best Broker for Your Trading Style

Commissions and fees can take a big bite out of your investment returns, so you should consider your typical trading patterns to determine the most cost-effective brokerage.

Every time you buy or sell an investment, you pay brokerage commissions. If you trade frequently or make purchases with only a few dollars, commissions can consume a big percentage of your returns. It makes sense to find the brokerage that executes your trades at the best possible price, but commission schedules are a complicated business. Brokerages charge different commissions based on a number of criteria. It’s almost impossible to capture all the subtleties of brokerage commissions, because each company calculates commissions a little differently. However, you can build a spreadsheet to estimate your annual brokerage commissions based on the methods and frequency of your trades.

Brokerages often charge different commissions depending on whether you place your trades online, use a touch-tone phone system, or speak to a broker. In some cases, market orders cost less than limit orders [Hack #54] . Many brokerages offer discounted commissions for investors who trade frequently—typically a minimum of 72 trades a year. For trades that represent a large number of shares or high dollar values, commissions are often calculated using a minimum commission plus a small percentage of the trade amount. In addition, bond and option commissions have their own schedule of fees. ...

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