Anyone who has been in the share market must know how much commission a broker charges for every single transaction. As per law, the trader has no other option but to provide a certain percentage to the stockbroker even if there has been a loss on a particular transaction. This commission that the broker charges from the trader is known as brokerage. Thus, brokerage fees can reduce the traders’ profits to a great amount. In order to solve this problem, many brokerage firms have come up with the option of trading accounts that charge low brokerage.
Meaning Of Low Brokerage Trading Account:
A low brokerage trading account refers to a kind of trading account that charges a minimum brokerage fee. This brokerage fee is probably the least in the entire share market. You can find many brokerage firms online that offer less brokerage as compared to the conventional brokerage firms available in the market. Therefore, you do not need to pay higher commissions on your transactions by opening a low brokerage trading account. Most of the time, a low brokerage trading account has a flat fee for the transactions, which is so low when you compare it with the existing system of paying the brokers with a predetermined percentage out of the profits.
Difference Between Low Brokerage Trading Account And Commission-Based Trading Account
When you trade via a commission-based trading account, you are likely to pay a lot more to the broker than a flat fee. This is so because the rate of commission is typically very high.
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Case 1
For example, you purchased 500 shares of a particular company for 500 for each share via a commission-based trading account. Now, suppose the rate of commission is 0.5%. This means you must pay a brokerage of 2500 irrespective of whether you earn a profit or not. Hence, either it decreases your profit or adds up to your loss by 2500.
Case 2
For example, if you purchase 500 shares of a particular company at 500 per share via a low brokerage trading account with a flat rate of 10 for each transaction. So, no matter whether you earn profit or incur a loss, you are only eligible to pay 10 rather than 2500.
The disparity in this brokerage amount will depend upon the transaction size. The bigger the order size, the more the commission will be. But, by using a low brokerage trading account, there is only a flat rate of 10 which needs to be paid, no matter what the transaction size is.
What Are The Advantages Of A Low Brokerage Trading Account?
The most significant benefit of opening a low brokerage trading account is that you only pay out a flat rate rather than paying massive commissions out of the profits. Moreover, if there has been a loss on a transaction, it will not increase your stress. Also, you need not to calculate the commission whenever you successfully enter into a deal.
Tips To Open A Low Brokerage Trading Account
You can find many reputable brokerage firms offering the low brokerage trading account for your convenience. When comparing different brokerage firms, you can check their experience, fees, reliability, feedback and many other factors to make sure you make the right decision. Once you have selected and hired a particular brokerage agency, you then need to fill out a form to open a low brokerage trading account and attach the required documents such as identity or address proof. When you are done with all of the standard formalities, you can easily trade in the share market without having to pay excessive commissions to the brokers. Make sure you open a brokerage trading account via a brokerage firm that charges the lowest fee in the market.