Comparing brokers
The advertised order fee is the smallest part of the cost. What matters is the spread, execution venues, foreign-currency fees, and whether savings plans are free.
Learning objective: After this lesson, you can compare two brokers by the costs that actually matter, not just the advertised order fee.
Zero euros per order sounds unbeatable. But every provider makes money somehow, and if not from the order fee, then elsewhere. Usually from the spread or from payments from the execution venue.
What you should actually compare: does a savings plan cost anything? Which execution venues are available? What does a foreign-currency purchase cost? Are there account fees? And what does an account transfer cost, in case you want to switch later?
That last point gets forgotten almost every time, and it matters. A provider that makes switching expensive or complicated locks you in, and being locked in here is never a good thing.
For most people, in the end only this matters: free savings plans on broad ETFs, no account fee, a reputable provider. Everything beyond that is fine-tuning that delivers less than simply raising your savings rate.
Actual trading costs consist of explicit and implicit components. Explicit costs are order and foreign fees; implicit costs are the spread and market impact. For small order sizes, the implicit share often dominates, which is why comparing on the order fee alone is systematically misleading.
In models where the execution venue pays the broker, a conflict of interest arises over the choice of execution venue. The regulatory duty of best execution requires a published execution policy. In practice, quality can be checked by comparing received execution prices against the reference price of a liquid venue at the same time.
For long-term investors, recurring costs matter more than transaction-based ones. Account fees and foreign-currency markups act on the entire holding, or on every distribution. Since they act as a percentage on a growing balance, the same exponential mechanism applies to them as to fund costs.
Summary
- For small orders, the spread is usually more expensive than the order fee.
- Check what an account transfer to another provider costs.
- Ongoing costs act on the entire holding; one-off costs act only on the order.
Did you get it?
Why isn't a zero order fee automatically cheap?
Because the cost then usually sits in the spread or in payments from the execution venue.
Which type of cost matters most for long-term investors?
Recurring costs like account fees, since they act on the entire, growing holding.
Why does the cost of an account transfer matter?
Because it determines how freely you can switch providers later.
Check your understanding
Sources and further reading
- Section 82 of the German Securities Trading Act (WpHG) on best execution of client orders, which obliges brokers to maintain and publish an execution policy. View source ↗
Related
- Every fee that eats into your returnStage 1
- Understanding the trading interfaceStage 1
- Currency riskStage 1
- Matching questions for this stageQuestions