| Borrowing |
There are two basic methods for paying your
broker: through commissions and
through asset-based
fees:
- Commissions - This traditional method of
payment normally is best if you are a "buy
and hold" type of investor who trades
infrequently. At full-service firms, around
30-40% of the commission becomes compensation
to the broker. Beware, however, that your
broker is incented to encourage you to trade.
- Asset-Based Fees - Both full-service and
discount brokerage firms offer the option
to pay a fee that is a percentage of the
value of assets in the account. With this
fee comes the right to make a certain number
of trades during the course of a year with
no per-trade commissions. There are inevitably
exceptions and exclusions, which you should
be careful to note. If you trade often, this
may be a more economical alternative to pay-as-you-go
commissions. This method also removes any
incentive for a broker to induce you to trade
excessively (commonly called "churning"
an account).
Keep in mind that commissions
and fees are
negotiable within limits set
by the firm.
This means that if you do a lot
of business
with a firm, you have some leeway
to bargain
for discounts off the standard
commission
and fee schedules. |
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Topic contents © Mark Kolakowski and CliqueFriends,
LLC, 2004 |
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