Broker Fees: How to Calculate the Total Cost of Ownership, Not the Commission Rate

Broker fee schedules should be compared not by the commission rate per trade but by the amount you will pay for your own year of transactions. The rate is only one line in the fee schedule, and it almost never determines the outcome. What decides it is the minimum commission per trade, the custody and account maintenance fees, the subscription fee for the pricing plan, the cost of carrying uncovered positions, and which of these lines are triggered by your order size and your trading frequency. A proper comparison is therefore always a recalculation of your own transaction history under each candidate's fee schedule, not a reading of the advertised figure on a landing page.

An honest caveat up front: TradeAlmanac does not maintain a database of brokers' pricing plans, and the platform has no directives for inserting their rates. Take the numbers from the current fee schedule on the broker's website and from your own brokerage statements; what exactly to copy out of them and how to add it up is described below.

What the cost of service really consists of

A fee schedule breaks down into several independent mechanisms, and each of them hits its own type of investor.

Turnover commission. A percentage of the trade value. For bonds it matters whether it is calculated on the clean price or on the price including accrued interest: in the second case the effective purchase cost is higher, and this shifts the yield calculation. Why a bond has several different yields in the first place is covered in a separate piece: how bond yield is calculated.

Minimum commission. A floor per trade or per day. This is the main hidden cost of a small account: on a small order the percentage rate stops working, and you pay a fixed amount. Worse still, a large limit order may be filled in parts on different trading days, and each part will turn into a separate trade with its own floor.

Account maintenance and custody fees. A fixed monthly amount, sometimes charged only in months with transactions, sometimes unconditionally. For a portfolio that simply sits there, this line turns out to be the main one: the percentage on turnover equals zero, while the fixed fee keeps running.

Subscription fee for the pricing plan. Plans with a subscription and a low rate pay off above a certain break-even point in turnover. You have to calculate this point yourself: set the total cost of the plan with a subscription equal to that of the plan without it, and see on which side of the result your actual turnover lies.

Margin lending and carry. The rate for carrying an uncovered position, the cost of repo trades, the size of the haircuts. If you do not trade with leverage, this line can be ignored; if you do, it is capable of exceeding everything else combined.

Other charges. Withdrawal of funds, currency transactions, over-the-counter and negotiated trades, orders placed by phone instruction, the terminal and API access, a subscription to exchange data, servicing of an individual investment account.

The comparison procedure

Step 1. Download your brokerage statement for the last full year and write out your profile: turnover by instrument, number of trades, average order size, months without transactions, whether leverage was used, cash withdrawals.

Step 2. Copy every line out of each fee schedule, not just the rate. Note separately whether the exchange fee is included in the broker's commission or is charged on top of it.

Step 3. Recalculate your past year in full under each fee schedule. Compare one final total with another final total.

Step 4. Check the edge cases: a month without trades, a single large purchase, a partial fill of a small order, carrying a position over the weekend. A fee schedule that wins on average often loses at the edges.

What is not in the fee schedule but still costs money

A difference in execution quality can outweigh a difference in commissions. The trading modes available, the morning and evening sessions, access to primary placements, the actual spread in the securities you trade: all of this is a price, just not one shown on the price list. Look at what you hold in your portfolio: stocks, corporate bonds, OFZ and exchange-traded funds are serviced under different lines of the fee schedule, and with funds the fund's own internal expenses are added to the broker's commission.

Taxes are a separate layer. The broker acts as a tax agent for personal income tax, and the tax base is determined by law, not by the fee schedule: 13%. But practice varies: how the broker nets the financial result across different instruments within the year, whether it withholds tax on dividends at the moment of payment, how it handles the carry-forward of losses from previous years and applications for deductions. If dividend income is a substantial part of your result, check the withholding procedure in advance, with your payout calendar in front of you.

What a fee schedule does not promise

A pricing plan changes, usually with notice and in the manner described in the broker's service regulations. So look not only at the current rates but also at how the broker gives notice of changes and which lines it has changed before. Unfamiliar terms in the documents are explained in the glossary.

The conclusion is simple: a fee schedule is a function of your behaviour. The same price list is expensive for infrequent large purchases and cheap for active trading, or the other way round. Until you have plugged your own turnover into it, you are comparing not prices but presentation.