“Yeah, commissions stink. With the E*Trade account, my net loss was ($629). I paid $441 in commissions.
I have thought numerous times about moving to another broker for commissions, but I’m really happy with how E*Trade has treated me otherwise. As my account size grows, the commission cost will become a smaller part of my gains/losses.”
Why are people paying more than they should? I really don’t understand it. It’s as if people enjoy throwing money out the window. My mother is in the same boat. She traders with Ameritrade, and BlueMax, and these companies are ripping you off.
Let me give an example:
On the etrade website they are saying you can get a savings account with no fees and no minimums for 5.05%. They are saying that they are 6x the nation average. Well, what they are talking about is a rip off!
I trade with Interactive Brokers which I consider a competitive broker. When my money is parked at IB I get interest based on the libor rate, which is a daily interest rate that banks lend to each other without collateral.
Right now the USD libor rate is 5.304%, and IB takes a 0.25% cut when paying interest thus I get 5.054%! In other words I get more interest with IB than eTrade.
Then people seem to get excited about Zecco and its no cost trades. It looks like no cost trades, but I wonder about the spread? Some brokerages that trade in CFD’s take no fees either, but their spreads include a fee.
Though I think I know where Zecco makes it money. They calculate an outrageous margin rate. Normally a margin rate is calculated using the libor, or at least that is what the brokerages pay. In my case my broker charges libor + 0.5%. Considering that the USD interest rate is 5.304%, I am charged 5.804% on my margins. With Zecco charging 10.5 percent, you are paying an additional 4.3% interest. This is money thrown out the window, up in smoke what have you!
And even if you don’t trade on margin if you day trade or do trades over multiple days you probably use margin. The exchanges hold your money for three days, which means during those three days you can’t buy or sell with that money. Normally brokerages will credit your account right away because from the brokerages perspective the transaction is a done deal and all that is left to do is fill out the paperwork.
To understand what I mean by margin even though you have enough cash consider the case where you have 30,000 in your account. If on day 1 you daytrade 15,000, then on day 2 you only have 15,000 available to trade. Even though your account will say 30,000 the 15,000 that has be credited to you is on margin until the cash is cleared. BTW this rule is not brokerage related, but is an exchange thing.
Summarizing it, what I don’t get is why people are throwing their money away when they could use a Professional Broker and save money?
You have to ask yourself are you trading for fun or are you serious about trading? If you are serious, then you need to calculate the interest costs, trade costs, and so-on. At the end of the day all that matters is how much you have in the pocket, not how much you made before expenses!