Fees with Discount Brokers

When deciding which discount broker to use (or to use one at all), you will need to assess the associated fees and commissions. This article will underline the main fees that you should be looking out for and informing yourself about before opening an account.

1. Trading fees.

Discount brokers are awesome in providing extremely cheap methods of purchasing investments. When looking for a discount broker you will want to find one that allows you to trade for no more than $5/trade. Given you will likely be making small transactions to begin with, you need to keep fees as low of a percentage as you can. Finding the trading fees on a discount broker is easy while going to their website, they tend to advertise them as it is one of their leading strengths. Transactions fees start around $1 and go up from there.

2. Currency exchange rates

If you wish to invest in the U.S. stock market, you will need to buy USD (U.S. Dollars) as this is the currency the market operates in. Note that if you simply wish to invest in the Canadian market (TSX), you will not need to deal with any currency conversion! Discount brokers tend to provide a cheap way of buying currency such as trading on Forex (a currency trading platform). This allows you to buy currency at the going rate (plus a small fee), which is exceptionally better than what large banks will give you. Make sure you are aware of these fees and whether they really are small fees before making Forex purchases. The fees can either come as a fix commission or as a floating point (some decimal points in correction of the exchange rate as a fee).

3. Activity fees

Discount brokers like to attract heavy traders, they are generally not targeting small personal investors. This means that some may charge you an activity fee if you do not have a minimal account value or if you do not trade often enough. For example, if you are under 25-year-old, Interactive Brokers charge activity fees of $3 minus any commissions (example: if a given month you generated $2 in commissions, you fees would only be $1). Meanwhile Questrade charges activity fees of $25/quarter (every 4 months) if your account value is under $5,000, although this is waived if you are below 25 years old.

4. Withdrawal fees

Some discount brokers may have fees for withdrawals. While the major ones have some free options if you are simply withdrawing cash (not investments), be sure to inform yourself especially if you have a specific banking condition. Also note that if you are transferring an account (say for example you want to transfer your TD TFSA to Interactive Brokers), there will be associated fees. If you transfer enough assets, the discount broker or bank being transferred to may cover these for you.  

5. Trading on other markets

If you would like to trade stocks that are not listed on a Canadian or American exchange, be sure to inform yourself about all the associated fees before placing an order. These can be substantially higher than the fees of trading on the North American exchanges.

Here is a list to some of the biggest discount brokers available to Canadians (link to their fees page), not in any particular order.

1. Interactive Brokers

2. Questrade

3. Virtual Brokers

Here are some of  the brokers of big Canadian banks. With these brokers you can expect higher fees (although they are becoming increasingly competitive), but you can also expect more support if you need help with your investments and a more user-friendly trading platform. 

1. BMO InvestorLine (Bank of Montreal's Broker)

 

2. RBC Direct Investing (Royal Bank of Canada's Broker)

3. Scotia iTrade (Scotia Bank's Broker)

4. TD Direct Investing (TD Canada Trust's Broker, previous TD Waterhouse)

If you have any question regarding fees or personal experiences you wish to share, please comment below!

- Yinvestors.


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