Many of the advertisements that you'll see for discount brokers focus on the price per trade (or the "commission"). While choosing the brokerage that provides the absolute lowest price per trade might be attractive -- and might even make sense -- it is possible that you'll find that there is some trade-off between service and price. (You've probably discovered that once or twice before in your life.)
Online brokerages can be put into three general categories:
- Super-cheap brokers that charge from $4 to $12 per trade. Best used by those who plan on trading very frequently, but satisfactory for buy-and-hold investors as well.
- Mid-priced brokers that charge between $12 and $20 per trade. These brokers justify slightly higher prices with more well-known brand names, and possibly additional services.
- High-priced brokers that charge more than $20 per trade, typically around $29.95 per trade. (They think $30 trades sound too high, so they knock off a nickel -- but we're not fooled.)
The trading costs aren't the only ones to consider when shopping for a discount broker. There are also other fees you should factor in.
If you're only making five, six, 10, even 20 trades in a year, the difference between paying $7 per trade and $20 per trade isn't significant. Better to make customer service a priority and not sweat about whether you've made the right choice.
