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How to Choose The Best Online Broker?

Broker fees can eat into your investment returns. Therefore, choosing the one that is most cost-effective to your style of investing is of utmost importance. In this article, I describe three common fees that your broker may charge.

Commission fees

The first and most important fee is the commission charges when you buy or sell a stock on a broker’s platform. Commission fees have reduced dramatically since the boom of the online broker. Traditionally, investors had to ring their brokers who then had to place their orders for them.

Thankfully, with online brokerages, individual investors can place their trades at a much lower cost. However, online brokers still charge varying commission rates. Investors who want the most cost-effective platform should look for a broker that charge low commission fees.

Minimum fee per transaction

Another essential aspect to look at is the minimum transaction fee that brokers charge. The minimum transaction fee is the lowest amount that brokers charge per transaction. Even if you are buying just a small amount of stocks, the minimum fee will still apply.

Small-time investors who diversify their portfolios should, therefore, keep an eye out for the differences in minimum fee rates among brokers.

Custody fees

Many Singapore brokers also charge an additional custody fee for overseas stocks. This is what they charge for helping you hold your stock on their account. This is usually around two dollars per counter per month.

Although this may not sound like a lot, it can definitely eat into your overall stock returns if you are holding a large array of stocks. If so, you may wish to find online brokers that can waive off this fee or do not charge custody fees at all.

The Foolish bottom line

Online brokers charge multiple fees to the investor. Being aware of these fees can help you find the broker that is the most cost-effective for your style of investing. Besides fees, investors should also try to look into other differences between brokers such as usability of the platform, access to analyst reports and more. All this should factor into the eventual decision of choosing the right broker.

Meanwhile, for more (free!) investing insights, sign up here for your FREE subscription to The Motley Fool's investing newsletter, Take Stock Singapore. It will teach you how you can grow your wealth in the years ahead.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.