Of all the ways to generate a little extra income or, for some people, to earn their main income, investing in stocks, shares and commodities can be an excellent option. When the market’s going your way it can mean far greater returns than virtually any other investment can offer. Even if it isn’t thriving it can still be an excellent time to invest when values are at a low point.
But, however and whenever you invest, there is always going to be the annoying phenomenon of brokers’ fees to pay. This is always an unwanted cut in any profits that you’re making and, like taxes, is an inevitability.
Although you can’t avoid them, it is a good idea to know how brokers take their fees and also to have an idea about how the amounts compare between different brokers.
These are the classic intermediaries between traders and the market and they offer a range of different services depending on how much support and advice is needed as well as the amount an investor has to speculate with.
At the top end there are Money Managers and Full Service Brokers who will actively manage a portfolio. For this they may well charge a percentage of the amount invested over a year instead of commission as they are mainly used for longer term investing.
Some brokers also earn referral fees from some funds and other investments and the good news for the investor is that this won’t cost them a cent.
Discount or online brokers offer a far less extensive service often just executing trades on behalf of clients for which they charge a fee or commission which generally range from between $5 and $10.
Some do offer a limited advice and information service and this will be reflected in the higher fees that they charge.
If you’re interested in the binary market in which you speculate on whether prices will rise or fall in a given time frame then the business model for the broker is very different. Generally, the broker makes money when the trader speculates incorrectly. So the plus side is that you won’t be paying any commission or fees to a binary broker, but, on the minus side, if they’re making money from you it means you’re not doing very well.
Social investment networks
The social investment network is a relatively new form of online platform which harnesses the power of user-generated content and knowledge to help clients invest in everything from stocks and shares to commodities like gold.
These typically charge something called an overnight fee which represents the change in value of a particular investment’s value overnight. The great news about this kind of fee is that if the value increases in the given period you could even receive a credit.
While you can trade in foreign exchanges on social investment networks there are also specialist forex brokers. These either take commission on the trade or the spread – that’s the difference between the bid price and the ask price for the spread. In some cases they charge both and you should be beware of ones who claim to offer commission-free trades as they often increase the spread price to cover this.
Which kind of broker you choose is very much a question of which kind of investor you are. Relative newcomers, and those with reasonably small amounts to invest could do well to use social investment networks and online brokers. Those with large amounts to invest or complex needs would do better with a Full Service Broker. In both scenarios hopefully the money you make will mean the fees you have to pay will be a little easier to bear!
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