The cheapest online brokers' charge 0.05 percent in commercial brokerage, and most major banks, three times more. So if you do not use the bank's consulting, you should go for the cheapest prices.
In stock trading one often tends to only focus on whether a stock can be sold at a price higher than it is purchased for.
This is obviously a prerequisite to make money on the deal. But it's actually not the only prerequisite. One must also take into account, the cost that comes with the trade – the trading or transaction cost. These costs depend on several factors:
Normally, the cost of a trade as a percentage of the amount traded. There can be large differences in the percentages you get to pay. When it’s recommended that you find the cheapest trading, it should be seen not only in relation to the cost estimation.
It should also be seen in relation to what you get for your money. And compared to what you need. You pay far more to trade through your bank than if you trade directly on the stock exchange through an online broker, and it may look like a solid premium. But that is not necessarily true.
Here you must take into account the fact that by trading through a bank usually follows advice. You can turn to your investment adviser and obtain advice and guidance on the investment you should make. This advice is written much both good and bad about, but you can choose whether you want it. And if you choose it, you must also pay for it.
However, it is important that you also regularly evaluates the advice: Whether it is good or bad, whether it is based on legitimate arguments, and whether you can obtain written analyzes on, both the deveolpment of the overall stock market and individual stocks.
Here the smaller online brokers are best compared with an automated gas station, where it is assumed that the customer can manage all the work. The rule is that no advice is given and you can not receive written analysis or continuous monitoring of your stock investments.
In turn, the online broker's IT systems are usually much more capable than the banks on automated trading solutions that can be programmed to limit losses at predetermined rates or repatriate profits from increases at a defined market stock rate.
Big difference
Trading costs, regardless of the solution must be set in perespektiv as there may be very big difference between the cheapest and most expensive solutions.
Many have been unpleasantly surprised when they have taken the time to do the calculations of their trading costs.
When after a year of hard work in the stock market has indeed made a profit on the stock trades, yet still ending the year with a deficit because the return drowned in trading costs, then it's time to switch tracks.
Maybe you trade to much or often, maybe you are satisfied with small gains, you might have had a few costly losses, because you did not sell in time, etc.
The hidden costs
Besides the direct costs that you pay to the bank / internet broker there also are another cost that can be reduced. Namely, the hidden costs of the differences in stock rates - also called the spread.
Spread is a fine word that really just means the distance between the price someone is willing to pay and the price at which someone will sell for. That is the difference between purchase price and selling price.
The stock market is indeed a marketplace where buyers and sellers meet, each with their own bid. And as you can negotiate a little on the price of a marketplace you can also negotiate the price of the stock market. Many just do not realize this. And it also assumes that you yourself make an active effort.
Here it is worth noting that when you make an instant trade through your bank, then you do not negotiate on price. So you simply pay the rate the cheapest seller on the market offers its shares for.
If you want to sell, you automatically accept the highest price available on the market at the time. Without questioning whether price are acceptable.
Save with direct trading
Direct trading on the stock exchange allows an opportunity to save this indirect cost. As a buyer you do not need to accept the seller's price. You can define your own bid into the trading system through your online bank and then see if anyone accepts your bidding price.
This form of trading obviously implies a risk that no one wants to trade at the price you are willing to pay. And then you have to either raise prices or abandon the purchase. But you yourself have control over what price your desired stock is bought or sold. And would therefore not have to buy a share to as high a rate, that you must be very patient, just to earn the cost and the difference between buying and selling price (spread) back.
One of the most costly forms of investing is daytrading, which unfortunately has become quite popular with many private investors.
Too many people have heard of some successful American daytrader or about the lone daytrader who became a millionaire in front of his computer that trades hundreds of times every day.
Beware of daytrading
In principle it is true that the old proverb "many creeks make a big river” also can be applied to the stock market.
But that presupposes that you both have an adequate understanding of both the stock market and trading techniques to spot the small increments on which daytrading is based. And also, that you invest sufficiently large amounts to not get caught up in the cost trap, that a minimum trading fee form.
With the entry of daytrading on the world market too many trades for many private investors have become a major problem, which they first become aware of, when they at one point do the calculations of their returns. Then they realise that they do not have the return of their investments that they thought they had.
But they have made their bank or online broker happy by sending a significant portion of net profits on to them. The purpose of stock trading is not making your broker or bank happy, so keep an eye on trading or transaction costs.
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