Should I Just Go
with the Cheapest Broker?
Many of the advertisements that you will see for discount brokers focus on the price per trade (or the "commission"). While choosing the brokerage that provides the absolute lowest price per trade might be attractive and might even make sense it is possible that you will find that there is some trade-off between service and price.
Online brokerages can be put into three general categories:
The trading costs are not the only ones to consider when shopping for a discount broker. There are also other fees you should factor in.
- Super-cheap brokers that charge from $4 to $12 per trade. Best used by those who plan on trading very frequently, but satisfactory for buy-and-hold investors as well.
- Mid-priced brokers that charge between $12 and $20 per trade. These brokers justify slightly higher prices with more well-known brand names, and possibly additional services.
- High-priced brokers that charge more than $20 per trade, typically around $29.95 per trade.
If you are only making five, six, ten, even twenty trades in a year, the difference between paying $7 per trade and $20 per trade is not significant. Better to make customer service a priority and not sweat about whether you have made the right choice.