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Broker commissions, fees and discounts
Brokers play a very crucial role in the selling and purchase of stocks for the clients. They earn their income through the commission splits they have with their clients. These commissions are also dependent on the quality of the services offered by the respective brokers. For example, the brokers who charge less might have limited services while those which charge more have better and personalized services. But at the same time, it's very important to investigate the rates of commissions and then choose the right broker.
Types of commissions
There are basically three patterns of broker commission intake for the brokers:
- Fixed spread
- Variable spread
- Commission directly charged on the spread
The spread is basically the difference in prices of what the market maker sells the currency and the price at which he is ready to purchase the currency.
For example, you see on your webpage, EURUSD -1.4942-1.4945. This number signifies the spread of only 3 pips. So, when it comes to fixed spread, the market vitality is ignored and the commission remains strictly fixed. On the other hand, the variable pip is dependent on the current currency status. The broker which takes the commission based on the spread would include pips of value 1.5 to 5.
Earning of brokers
Here's the revelation of how much the brokers, which handle the loans earn. For example, the vale of the loan amount is $1,000,000. The origination points in this case will be $30,000. Let's say, the split decided comes to $15,000. Thus, the commission of the broker happens to be $15,000. Moreover, the California brokers end up making 18 million dollars per year just through commissions.
Lately, the broker's commission and fees in China has witnessed a drop of 39.14% in the market. This fall has been the first drastic one in the past nine months. Its one of the effects of the slumping of the forex markets of the country. Earlier, the total income from the commission and fees of the brokers was 79.92 billion Yuan but now this figure had dropped to 131.32 billion.
The earning has been affected as now less people are coming forward for buying stocks, mutual funds, options and other services of the brokerage firms. The volume of trade is thereby decreasing.
Discount broker and brokerage: An individual or company, who executes trade in lower prices then full services prices is called Discount Broker. And the financial advice and market research, which is provided to their customers in less prices rather than full prices is called Discount brokerage. It means entire financial services for buying and selling trades, which is provided by brokers in less prices then full services.
Some real time instances
Brokers like CIBC Investor's edge charge $25 dollars as commission if more than 1000 shares have to be traded. These are for the online market orders. While turning to the offline market orders, the company charges 28.5% commission for the same trading. Their trade package is about 50 equity shares on which they charge the 6.95% commission.
Other brokerage firms like BMO InvestorLine have different flat and regular rates for trading purposes. The other famous brokers in Canada are Credential direct, Disant, HSBC InvestDirect, Questrade, TradeFreedom and Qtrade.
Which broker to select on which commission?
Eventually, the most important question strikes? How to select the right forex broker for yourself? You should start by knowing the spreads so that the idea of the charges gets cleared. Smaller spreads have better profits for the brokers.
Most of the forex brokers prefer trading off between the services and spreads to calculate the commissions. It's also very important to acknowledge the margin terms of the forex traders and brokers. You should inquire about the broker's policies, the account balances, the respective interest payments and currencies in which the trading would be executed.
Finally brokers are not your friends or enemies. They are present only for business reasons. It hardly matters to them, how much trading success you achieve. Their job gets over with the commission they receive. S, its very important to make the right choice of the brokers to serve you in the longer run.