When you start trading and investing in the financial markets, you’ll quickly realize that it isn’t an easy task. It takes time, commitment, discipline, energy, and monitoring to be able to make the best trading decisions. As you work hard to make profits on the markets, you’re rightfully expecting to keep as much as possible in your pocket. However, there are things that might eat away at your financial profits, like fees and commissions. That’s why you need to be aware of them and minimize them as much as possible to get the most out of your trading. Let’s take a look at some of the most popular ways to lower your fees.
1# Understand the different types of fees and commissions you’ll have to pay when trading
When you start trading, you should be aware of all the sorts of fees and commissions you will have to pay to your broker, so you will have a better understanding of all the expenses related to your trading activity. It might then be easier to reduce some of them if you can.
First of all, most brokers will charge some fees at some point during your trading experience (even the free offers). The most common trading fee is the spread, which is the difference between the buying price and the selling price. In addition to the spread, some brokers might apply a commission fee when you buy and sell an asset.
Depending on the related financial asset, you might also have to pay custody fees (mostly when you’re buying shares, ETFs, and other funds, as well as bonds without leverage) and management and/or performance fees (especially when investing in funds).
You also have to take into account potential fees for using a specific trading platform or tool in your strategy, such as screeners, professional research, or chart pattern detection tools, as well as fees linked to data feeds from major stock exchanges, such as stock data from Euronext or the NYSE, for instance. If you do not use your platform for a while, an inactivity fee might be applied to your account.
It’s also important to take into account other fees that are not directly linked to your trading activity, such as deposit and withdrawal fees, conversion fees, swap and rollover fees, as well as margin maintenance fees, margin call fees, and liquidation fees when using margin and leveraged trading. You also have some fees that are linked to a specific way of processing your trading orders, such as fees on guaranteed stop-loss orders to avoid slippage or on some advanced orders.
You also have to take into account fees linked to particular asset classes. If you invest in shares, for instance, companies might distribute dividends. Some brokers will charge related fees to dividends, like dividend processing fees.
2# Shop around to find the cheapest broker
Once you know more about the most common types of fees you will need to deal with when trading, you can compare the fees of different regulated brokers, as they can have significantly different fee structures.
Of course, fees shouldn’t be the only factor to take into account when choosing a broker, but it is important to keep them in mind. The quality of the broker's trading platform, customer service, and account features are other important factors to keep in mind. A cheap broker may not be the best option if it lacks the trading tools and resources you need to implement your strategy and make informed investment decisions.
3# Choose a broker that is competitive for your kind of tradings strategy
When choosing a broker, it's essential to consider how well-suited the broker is to your specific trading strategy, as some brokers are more competitive for certain types of trading strategies than others.
For example, if you are a long-term investor who primarily buys and holds stocks, you may be less concerned about commission fees linked to active trading and more interested in a broker with comprehensive research tools and custody fees.
On the other hand, if you’re an active trader using trading techniques such as scalping or day trading, the fee structure of the broker will be important, as you will be trading a lot and accumulating many trading positions. You will also require a broker with fast execution times and advanced trading tools.
By choosing a broker that is well-suited to your trading strategy, you can potentially save money on trading fees and optimize your investment returns over time.
Remember that ActivTrades offers both types of trading accounts: one dedicated to active trading with margin and leverage trading and fast and reliable trading execution (sdub-0.0004 average execution time with no re-quotes) and one without leverage to invest in about 1,000 international companies without paying stamp duty, custody, or account management fees.
4# Control your emotions to avoid over trading
Overtrading occurs when investors make too many trades based on emotions or impulse rather than a solid investment strategy, which can lead to excessive trading fees and poor investment returns, especially when you’re an active trader. That’s why it’s essential to learn how to control your emotions when trading. It will also help you be more disciplined and make better trading decisions.
To avoid letting your emotions dictate the way you trade, you should have a solid trading plan with money management rules respecting your risk appetite that you always follow, no matter what. You can also set trading limits, such as the number of trades you make in a single day or week, to avoid the temptation of making impulsive trades based on your emotions.
You should also take breaks to recharge your battery and maintain a clear and objective trading mindset. It is especially important after a series of big gains or big losses, as it can be tempting to try to make up for your losses with ever more risky trades.
5# Consider using a robo-advisor
Another way to potentially reduce trading fees and improve your investment returns is to use a robo-advisor or a hybrid robo-advisor. Robo-advisors are online platforms that use algorithms and automated processes to manage and optimize investment portfolios for clients.
Robo-advisors typically have lower fees than traditional human advisors and can help investors save money on trading fees and other investment costs. They may also offer features such as tax-loss harvesting and automatic rebalancing, which can help optimize investment returns over time.
In addition, robo-advisors can be a good option for investors who are new to investing or who do not have the time or expertise to manage their own investments. They can provide personalized investment recommendations based on your risk tolerance, investment goals, and other factors.
When choosing a robo-advisor, be sure to research and compare the fees, investment options, and features. As always, look for a robo-advisor that is well-suited to your strategy, goals and risk tolerance.
Bottom line
As you can see, there are a number of ways you can reduce your trading fees. We’ve mentioned 5 of the most popular ones, but there are other things you could do to reduce your fees, such as negotiating with your broker to have a personalized fee structure if you invest a large amount of money.
The information provided does not constitute investment research. The material has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and as such is to be considered to be a marketing communication.
All information has been prepared by ActivTrades (“AT”). The information does not contain a record of AT’s prices, or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information.
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