One of the main challenges faced by most traders, whether aspiring or seasoned, is how they can maximise their profits. However, one of the main hurdles that this wish fulfilment has to go through is brokerage fees.
Brokerage fees are not insignificant charges, as they may otherwise appear. They have the potential to eat into your returns thereby causing hurdles in your financial goals. To help you reduce the effects that brokerage fees have on your returns, we will be looking deeper into how you can save on these costs while trading.
Impact on Your Trading Style
The brokerage fee during trading essentially includes two main costs. These are:
- Commissions:
- Commissions are per-trade fees charged by your broker when you buy or sell any order
- Brokers can either have a fixed commission rate or they can accept a percentage of the trade value.
- Platform Fees:
- Though this is not the case with every broker, some brokers have additional charges for using their trading platform.
- Under such fees, you can access data feeds, look at charting tools, etc for a more elaborate trading experience.
Impact on Your Trading Style
The impact of brokerage fees can differ according to your trading style:
- Day Trading:
- Day traders who carry out high-volume trades regularly during the day might find themselves with a large chunk of accumulated brokerage fee
- Take for example a day trader who makes 20 trades in a day with a ₹10 commission each. This in itself costs him ₹200
- Swing Trading:
- Swing traders usually hold onto their positions for days or weeks
- This is why they are less impacted by brokerage fees
- However, reducing them can truly help increase your overall returns.
- Long-Term Investing:
- Long-term traders carry out fewer trades, but if the brokerage fees are high they can eat into returns over time
- This holds true specifically for smaller investment accounts.
How to Minimise Brokerage Costs?
There is good news, however, for investors looking to reduce their brokerage fee and eventually its impact on their returns. Some of them include.
- Choosing a Low-Cost Broker:
- There are a lot of discount brokers available in the market
- They can offer you a low brokerage trading account to begin your trading journey
- However, it is crucial to research and then choose the broker who aligns with your investment goals
- Negotiate Commissions:
- When there are high-volume trades involved, certain brokers might just be willing to negotiate the brokerage fee
- It is important to be open to ask this of them when the need arises.
- Keep Your Trading Style in Mind:
- Compare your trading style with the fee structure laid out by your broker
- In case you are a day trader, an account with low brokerage charges is important
- Amend Your Order Size:
- A larger order size will reduce the per-share cost.
- If your broker is offering per-share commissions, placing a larger order will reduce it.
Conclusion
Brokerage fees might not seem too significant, but trust us when we tell you that they can truly eat into your returns in the long run. There are different types of fees and different trades that get affected in different ways by them. Being aware of all this can help you in adopting well-structured, fee-reduction strategies. This will help you hold onto the profits you worked so hard to earn. With the right knowledge to accompany you, a low-brokerage trading account with a trusted broker, and by making informed choices, you can truly minimize your brokerage fees and achieve your long-term investment goals.