Broker fees

Not all broker fees have the same effect on your returns. Learn what kind of fees brokers charge, which ones can really affect your returns, and how to find the cheapest broker for your investment style. Choose a broker that matches how you invest, and avoid losing returns you could have kept.

Contents:

• Transaction costs
• Spread costs (buy-sell difference)
• Currency costs (FX costs)
• Service fee or custody fee
• Exchange fees and price data
• Other costs
• How to compare broker fees

Please note: investing in financial markets involves significant risk, you can lose money when trading.

Short summary

• Transaction fees are easy to see, but it is often the less visible fees that make the biggest difference over time. Think of currency conversion fees, service charges or costs that only become clear after several months or years.
• Each broker charges in a different way. One might use a fixed monthly fee, while another earns its margin through exchange rates or spreads.
• Some fees only apply if you invest in a certain way.

Broker fees

Trading platforms use different ways to make money. The most common types of costs you make at stock brokers are:

Transaction fees

These are the costs you pay when you buy or sell an investment. There are big differences between stock brokers. Some online brokers charge a fixed fee per trade. Others charge a percentage of the trade amount. Because of this the costs can vary a lot, depending on how much you invest.

Brokers with fixed fees usually charge a few euros. For example, DEGIRO charges 3 euro per trade. Brokers who use percentages often have a minimum fee or add a fixed amount. This way, they still make money on small trades. For example, they may charge 0.5 percent plus 1 euro.

Which broker is the cheapest depends on how much you invest. If you invest a maximum of 100 euro per transaction, the broker with the variable fee only charges 1.50 euro, which is very low. But if you start making larger trades, for example 2000 euro at a time, you pay 11 euro with the same percentage. That is quite high. On average, brokers with fixed fees, or low percentages, are usually cheaper over the long term.

Which broker is the cheapest depends on how much you invest.

Open an account directly with eToro, a large European broker, or with Freedom24, which offers a range of one million stocks, ETFs and options. Investing involves risks. You can lose your investment.

Spread costs (buy-sell difference)

Every time you buy or sell an investment, there is a spread. This is the difference between the buying and selling price. As an investor, you always pay this difference, but it is not shown as a separate fee.

How well and cheaply your order is processed depends a lot on the broker’s network and infrastructure in that country or on that exchange. Even well-known brokers like eToro, Trade Republic or Revolut sometimes use other parties in Europe. This can increase the spread. Brokers like DEGIRO and Interactive Brokers often have better systems, which helps them process orders at lower costs, even if their transaction fees are higher.

When investors compare platforms, they often look at popular stocks. These usually have a small spread, sometimes only a few cents. But for products that are traded less, like small funds or certain options, the spread can be a lot more, up to a few percent. This means you pay more than you might expect.

Example of spread costs:

A share has a buy price of 10.00 euro and a sell price of 10.20 euro. If you buy the share, you pay 10.20 euro. If you sell it right away, you get 10.00 euro. This means you lose 0.20 euro per share, even when there is no visible fee. It may not seem like much, but it is the amount per share. If you trade many at once, the total loss can grow quickly.

Brokers that promote low or no transaction fees often make money from the spread. This means the price you pay is slightly worse than what is possible on the market. You do not get a bill, but you may still pay the same or even more than with brokers that charge clear transaction fees. This is especially important when you invest larger amounts.

Currency costs (FX costs)

Besides spreads, currency costs are also important. If you invest in shares or ETFs listed in another currency, like US dollars or British pounds, you pay these costs. Brokers usually add a markup to the exchange rate. This markup is often between 0.10 and 0.25 percent per transaction. A 0.25 percent fee may seem small, but the impact depends on your investment amount. If you invest 1,000 euro, you pay 2.50 euro. That is already close to normal transaction fees.

Brokers also usually do not use the official interbank rate. They use their own, less favorable rate. You pay this fee not only when you buy or sell. If you receive dividends in another currency, your broker will also convert them to euro with the same extra charges.

This can create big differences between brokers. In some cases, you pay up to 1 percent, which means currency costs can be even higher than transaction fees. Some brokers offer the option to convert money yourself through a separate currency account. This gives you more control, but you have to track how much you hold in dollars or other currencies.

Open an account directly with eToro, a large European broker, or with Freedom24, which offers a range of one million stocks, ETFs and options. Investing involves risks. You can lose your investment.

Service fee or custody fee

Some brokers charge fixed fees for holding your investments. These are often called service fees, platform fees, or custody fees. You pay them monthly, quarterly, or yearly. They are like a subscription for your account.

Many banks charge high fees, often as a percentage of your total investments. This may seem small at first, but as your account grows, the costs increase quickly. For example, a fee of 0.5 percent means 100 euro per year if you invest 20,000 euro. With 100,000 euro, that becomes 500 euro per year, even without making any trades.

Online brokers usually do not charge these fees, or they charge a low fixed amount. For example, Scalable offers a subscription for 4.99 euro per month, but then you get free trades, which can save you money. These service fees often make online brokers cheaper than investment accounts at large banks.

The impact depends a lot on your portfolio. If you have invested 1,000 euro and pay 24 euro per year, that is already 2.4 percent in costs – without making any trades. If your portfolio is 10,000 euro, the same fee is only 0.24 percent. So fixed fees affect smaller investors more.

Exchange fees and price data

Some brokers charge extra for access to certain exchanges or for showing real-time price information. If this is important to you, it is good to know that brokers differ in how they handle this.

Exchange fees
Exchange fees are fixed costs you sometimes have to pay to trade on specific markets. For example, if you buy just one share from Switzerland or Asia, you may still pay yearly exchange fees for that market.

These costs are usually low and apply per exchange, per year. If you have several investments within the same market, the fees stay manageable. If you only invest in your own country, you usually trade on one exchange and do not pay extra. Access to European exchanges is often included by default.

But if you also trade in South America or Asia, the costs can rise to 10 euro per exchange per year. Sometimes this amount is refunded as trading credit when you place an order on that exchange.

Price data subscriptions
Every broker has price data, but not always in real-time prices. If you mainly invest for the long term, this is often not necessary. But keep in mind that you are then looking at prices that may be delayed by up to 15 minutes. Real-time data can costs 1 to 5 euro per exchange per month. At brokers like DEGIRO and Interactive Brokers, you can activate this per exchange. Other brokers offer real-time prices only for a limited number of markets.

Other costs

Sometimes brokers charge extra fees that are not clearly visible. For example, there may be costs for depositing money. Brokers like Scalable Capital or Trade Republic offer payment options through external providers, but these can be expensive. A regular bank transfer is almost always free and is usually processed the same day within Europe.

Some brokers also charge fees for withdrawing money, especially international ones. Often, the first withdrawal each month is free, but after that you may pay a few euros per transaction. Lastly, eToro charges 10 euro per month if you do not log in for a year. These inactivity fees are rare and easy to avoid, but it is good to be aware of them.

How to compare broker fees

With the overview above, you now understand the most important types of costs. But to find out which broker is cheapest for you, you first need to know your own investment style. Ask yourself these questions:
• How often do you buy or sell? (If you trade often, fixed fees may be cheaper)
• How much do you invest each time? (For large amounts, you want to avoid percentage-based fees)
• Do you invest in other currencies? (Then currency costs matter)
• Do you invest only in Europe or also worldwide? (Then look at exchange and currency fees)

In general, a broker with no fixed fees and low transaction costs is best for people who invest small amounts each month. These are passive investors who trade only now and then. A broker with fixed costs becomes more attractive for active investors who want to beat the market. Then you can earn back the fixed fee through lower trade costs.

Be careful: a broker with low transaction fees can still be expensive if it charges a fixed service fee. On the other hand, a broker with slightly higher trade costs can be cheaper in the long run if you trade rarely, invest in euro, and avoid other charges.

Three situations compared

1. Mark (29) invests 200 euro each month in a broad ETF
Mark invests passively and automatically. He buys once a month, always in euro. He does not check the market daily, but wants low costs.

A broker with no fixed fees and low transaction costs fits him best. Because he invests only in euro, he avoids currency costs. He does not need real-time price data. Brokers like Scalable or Trade Republic are often the cheapest for this situation.

2. Maria (42) actively invests in European and American stocks
Maria follows the market, reads analysis, and trades several times a month. She invests in euro and dollars, and looks at companies outside Europe.

For her, low transaction costs are important, but currency and exchange fees also matter. A broker with fixed monthly fees (like Scalable Capital or Saxo with a subscription) can be cheaper than one that charges per trade or per exchange. She also needs to watch currency spreads and dividends in other currencies.

3. Elena (58) has a 100,000 euro portfolio and rebalances now and then
Elena has a large portfolio that she manages quietly. She does about five trades a year, mostly rebalancing. She invests globally, including in US ETFs and Asian stocks.

For her, service or subscription fees are important. A bank may charge 0.5 percent, which means 500 euro per year, even with no trades. She also checks currency fees, since some of her dividends are in dollars. Brokers with high currency markups quietly reduce her returns. She wants access to global exchanges without extra charges. A broker like Interactive Brokers, DEGIRO, or Scalable Capital is interesting for her, especially if she chooses a profile with no fixed annual costs.