What Beginner Investors Need To Know About Brokerage Fees And Commissions

Online brokerages have made investing more convenient and affordable for retail investors. Still, trading costs can vary significantly from one brokerage to another. Here’s what investors need to understand about brokerage fees and commissions, and how they impact investment returns.  

When done right, investing can be a powerful tool for accelerating your financial journey so you can reach your financial goals much faster, be they small goals like protecting the value of your money, or larger ones like early retirement. 

Online brokerages offer access to markets such as equities, funds and commodities, along with various ways to trade them. One core benefit of online brokerages is that they are much more accessible than brokerage firms or hedge funds, which typically require an initial deposit of six figures or more to acquire their services. In contrast, online brokerages offer a DIY approach to investing, while doing away with high capital and high fees.                 

However, while online brokerages charge lower costs, not all of them follow the same fee structure. This means that the often-used “low cost” phrase may mean a large difference in total fees from one online brokerage to another. 

Fees aren’t as innocuous as you may think, as they can eat into your returns over time, affecting your overall investment performance. This effect is multiplied over time, so it’s crucial to choose an online brokerage that can offer you the lowest possible fees. 

Table of contents

• What fees and charges do online brokerages charge?
• What does “zero-fees” really mean?
• How trading commissions add up
  
  • Impact of trading commissions and platform fees on your investment returns
• CMC Invest: a true, low-cost online brokerage
• Free upgrade to ‘Invest’ tier for 12 months – now available for all clients
• Sign up for CMC Invest and enjoy lower commissions today

What fees and charges do online brokerages charge?

First, let’s go through a quick rundown of the various fees and charges typically encountered when trading via an online brokerage.

Commission fee

Each time you make a trade, a commission is charged as a percentage of your trade. This percentage varies according to the market you trade-in as well as your trading amount. It also means that the more often you trade, the more you need to pay in commissions. 

Deposit and withdrawal fee

To start trading, you need to deposit funds into your brokerage account. You can also make withdrawals from your account balance in cash. Online brokerages may impose a fee each time you make a deposit or withdraw from your account, especially if you were to deposit or withdraw in a foreign currency. 

That said, some online brokerages like CMC Invest don’t charge any deposit and withdrawal fees. 

Inactivity fee

If you do not log in or actively make trades on your account for a prolonged period, you may be penalised by an inactivity fee. Closing your account will cease inactivity fees, but only if you do so before the inactivity period is up. 

Inward transfer of portfolio 

Rather than cashing out your holdings from one brokerage and starting up again with another, you can transfer your portfolio instead. This may incur a fee by the brokerage receiving your transfer. 

Settlement fee

When you sell your holdings for cash, your brokerage needs to initiate a settlement. This process may incur a fee. 

Platform fee

Online brokerages provide access to trading software, live price feeds and other digital services. Some may charge a small fee for maintenance and/or licensing costs, in the form of a platform fee. 

Custody fee

A custody fee is charged for holding and maintaining your investments on your behalf. This may be charged by the online brokerage, or paid to third-party custodians. 

Forex settlement

When you trade stocks or securities denominated in a foreign currency, there are currency conversion charges involved. Many online brokerages are able to command a bulk rate, resulting in lower forex fees for their customers. 

What does “zero-fees” really mean?

As you can see, there are many different fees and charges incurred when using an online brokerage. But the good news is, many online brokerages waive most of these fees, advertising their “zero-fee” trading services. 

But while a brokerage may display “S$0” for many of these fees, it may charge high commissions instead. Therefore, “zero-fees” trading does not automatically mean you can trade for free, and you may well end up paying a hefty sum in commissions. 

The takeaway? Investors should calculate the total cost of commissions payable when making a certain number of traders each month. This number will give you a clearer representation of the true cost of investing with an online brokerage. 

How trading commissions add up

To illustrate the impact of trading commissions on your investment returns, let’s compare various popular online brokerages and their commissions. 

Please note that what follows is a hypothetical scenario based on publicly available information and a rigid set of parameters that is unable to adequately reflect real-world scenarios, as there are simply too many variables to account for. Your mileage may vary. 

Our comparison will be based on 10 SG stocks and 10 US stocks, for a total of 20 trades per month. With a budget of S$500 per month for SG stocks, and S$500 per month for US stocks, the commissions are lower than the minimum charges. Hence we will be using the minimums for each brokerage. But do be aware that higher trading budgets will give you different results.   

Some additional notes before we start: For IBKR, we are referencing the commissions for the Fixed membership account type for simplicity; CMC Invest, we are using the rates offered on the Invest membership tier; for Webull, we are assuming rates based on regular trading hours. 

* FX rate for USD to SGD = 1.352, taken from xe.com

Impact of trading commissions and platform fees on your investment returns

As you can see from the table above, commission fees vary widely between online brokerages, resulting in wide differences in how much you pay per month. Also, some online brokerages charge platform fees for certain types of stock trades, further adding to your costs. 

While they may seem like relatively minor sums, the fees can impact our returns in the long run. Hence, savvy investors know that minimising these fees can also help to maximise returns. 

Recall how we’re investing S$1,000 in total per month (S$500 for SG stocks, and S$500 for US stocks). We’ll tally up the total investing budget spent per year, less fees, and compound the result for 10 years at a rate of 10% per annum, which is a pretty modest rate of return for the stock market. 

Here are the results:

As shown, high commission fees could siphon as much as S$5,000 from your total returns, after investing for 10 years at S$1,000 per month. 

Disclaimer: Once again, we have to emphasise that these calculations are simply a thought exercise to illustrate what could happen. Your actual commissions will vary based on how many trades you make, your investment budget, and which markets you participate in. 

CMC Invest: a true, low-cost online brokerage

By now, we hope we’ve impressed upon you the importance of choosing a true, low-cost online brokerage. 

CMC Invest offers the lowest commission charges because it doesn’t charge platform fees for all stocks. 

In addition, CMC Invest charges zero dollars for deposits and withdrawals, inactivity fees, custody fees, and settlement fees. Meanwhile, FX fees can go as low as 0.20% with the free 12-month upgrade to ‘Invest’ tier. 

But what made CMC Invest the clear winner in our example is the free trades that are included every month. 

This means that as long as you stay within your free trades quota, you will be assured of minimal commission charges or even none at all. 

Free upgrade to ‘Invest’ tier for 12 months – now available for all clients

Eagle-eyed readers might have spotted something interesting in the table above. Yes, that’s right – for a limited time only, you can sign up for an account with CMC Invest and get upgraded to ‘Invest’ tier for 12 months for free upon sign up.

Here are the perks you can enjoy with the ‘Invest’ tier:

• 45 free trades per month (5 for SG stocks, 10 each for US, CA, UK and HK stocks)
• Preferential FX settlement rate of 0.20% 
  • Best rate of all membership tiers, even lower than Diamond (0.40% FX rate) 

Sign up for CMC Invest and enjoy lower commissions today

Given that most reputable online brokerages today offer similar levels of service, there is simply no good reason to pay higher commissions than necessary. 

Unless you’re getting tangible rewards such as rebates or free shares, or there are other offsets such that you pay less overall when trading, all higher commissions do is put a drain on your portfolio. 

You can sidestep this issue when you sign up with CMC Invest. With zero fees on almost everything, low FX settlement, free trades and transparent pricing, you can be confident you will be getting optimal value with every trade. 

Sign up for CMC Invest today and get a welcome offer of up to S$313* worth of stocks (Grab and Tesla shares). 

*Price of Grab and Tesla shares as of 1 August 2024. 

Disclaimer:  © CMC Markets Singapore Invest Pte. Ltd.. Co. Reg. No./UEN 202217639M ("CMC Invest"). Regulated by the Monetary Authority of Singapore (CMSL No: 101320). Refer to CMC Invest website at www.cmcinvest.sg for Terms and Conditions, Risk Disclosures, Privacy Statement, and other important information. SingSaver is our paid affiliate marketing partner. 

CMC Invest provides an execution-only service only. All forms of trading and investments carry risks and may not suit everyone. Losses can exceed initial investment so do ensure you have regard to your own personal needs, financial circumstances and risk tolerance, and understand the risks involved prior to dealing in any investment products. Where in doubt, seek independent professional financial advice. This advertisement has not been reviewed by the Monetary Authority of Singapore.