An extremely important, but often overlooked area of investing involves trading fees. The best way to view fees associated with your investment is like a tax, and the easiest way to eat up your profits is by exposing yourself to excessive or unnecessary fees. Don't let yourself overpay for common services, and don't let yourself be nickel and dimed. This priciple is talked about extensively in John C. Bogle's book Common Sense on Mutual Funds. Bogle, by the way, is the creator of the Vanguard mutual fund family which is known for its low fees.
One area I've personally seen a good chunk of my profits eaten up is through trading fees. Long ago when I set up my personal investment account, I picked eTrade as my brokerage based solely on the positive things I had read about it. Now don't get me wrong, I love the speed, ease of use, and all the extras on eTrade, but since I recently began investing the money in that account, I've found that trading fees are rather high. At $12.99 per trade, I need to clear $25.98 on any transaction before I even make any profits. This wouldn't be a huge amount if I was dealing in larger amounts of shares and/or money, but at the levels I'm currently trading it is just too much.
As an investment club, we've spotted this as an area that we want to target. We want to minimize the amount of 'taxes' we're exposed to, so we can maximize our profits. I was personally tabbed with comparing a number of the online brokerages that are out there. I initially looked at eTrade, Scottrade, Charles Schwab and TD Ameritrade. Any of these well known online brokerages could have been good choices, but their trading costs ranged between $7-$12.99/trade which would mean we'd need to clear anywhere between $14-$25.98 on any transaction before making a profit. That still seemed a bit high, so we looked at other options. That's when we stumbled across Zecco and Trade King. Zecco offers trades for $4.50 while Trade King offers $4.95 trades. That puts the break even point down at $9-9.90/trade... that's a huge difference when your dealing in relatively small amounts of money or low numbers of shares. While we're currently leaning toward using Trade King due to the positive feedback we've read and away from Zecco due to the mixed reviews we've seen, we haven't yet decided which one we'll pick. It mostly depends on which brokerage may be offering a bonus or other promotions (somebody will be blogging on the topic of bonuses and checking accounts very soon). Zecco might still be an option considering the new promotion for $0 trades with a minimum $2500 balance (http://hello.zecco.com/landing/search/search2/?gclid=COO6u5HJ8pcCFQHHGgod0wcEDg). We'll keep you posted when we decide.
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I found this on NWA's promotions site. It seems cheaper than what you mentioned but I'm not sure about its features. Plus you get WorldPerks miles for signing up.
http://www.banks.com/nwa/
I looked into this some more and regular, non-automatic trades are in the higher price range of the big sites. The miles are nice but not worth the higher costs.
As a bit of an update, we're actually considering going with ScottTrade now. The trades are $7 each way, but it may ultimately be a better option for us due to the fact that they have a branch office about a block away from our office. Why is this important? First, because we can get much better customer service. Those are two areas we've seen a lot of negative feedback on from Zecco and TradeKing. Second, because we found out that our bank will charge us fees on electronic money transfers, so we'd need to use a check to transfer money in order to prevent being charged the fee ($3/transfer, IIRC). Being that we collect funds bi-monthly, this could get expensive in the long run, not to mention the inconvenience of waiting on snail mail to deliver the check to one of these brokerages and the time needed for them to cash and process the funds. With ScottTrade, we could walk in with a handful of cash, hand it to a teller, and avoid the fees and wait.
I like this post...because I feel the same way...WHY PAY MORE...when YOU CAN PAY LESS?! I want the most of "banging for my bucks"! I'm a PENNYSTOCK follower...and I'm talking about stocks that look prosperous in the near future and that I follow for weeks,months before buying in. When I'm looking at DELPHI Co. trading at .02-.14 knowing that has partnerships with caterpiller, ford etc... paying $4.95 is definatelly better than paying +$10x trade. Right now DPHIQ is trading at .06...meaning if I pay $5 for the trade i get 83 more shares rather than make a trade at $10. makes sense to me
Tradeking.com all the way! My friend referred me (he got $50 for my sign-up) and recommended me to use this trading company. He has been dealing with them for years. He has been happy and so far I've been too.
One thing about tradeking.com, they sure like to take their time to verify your banking accounts during the sign-up (5 days) and are a bit slow on the 1st transfer phase. However it is mentioned so you are aware that there might be some time passing...and that could be negative if you are trying to make a speedy or important transaction.
Sion, welcome to the site and thanks for the post!
I'm definitely interested in your comments regarding TradeKing, as I'm actually thinking of opening another personal account that I do more trading in than my eTrade account for the reasons regarding trade fees discussed in the original post. I'm also interested in some of the cheaper, speculative plays like Delphi and GM due to the tremendous upside potential, but those definitely aren't stocks we'd consider for the club due to their inherent risk.
Keep us posted on your investing and feel free to chime in and/or start new topics here on the blog.
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