#683 - How Do Brokerage Commissions Work?

The "Daily Call" From Option Alpha

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be answering the question, “How do brokerage commissions work?” Obviously, as you know, there’s many different ways in which brokerage commissions can work. We’re going to kind of go through a list of them here, so you could see what works for you and what works for your account. Obviously, check with the broker that you’re using. Look in multiple brokers, look at reviews of brokers because it is wildly different and the first thing I’ll tell you is whatever brokerage commission you see online may not necessarily be what they could actually charge you because you can negotiate your commissions lower. Many people don’t understand that the brokerage commissions that you publicly see on the front face of every single website is just literally a starting point and oftentimes, there are traders and investors who get substantially discounted commissions just for simply asking or for moving money over or for changing accounts. You have to understand that all of this is still negotiable.

There’s a couple of ways that brokerages charge commissions and how they work. The first one is on a per transaction basis or a per trade basis. This is usually a ticket charge of some kind. They would usually say, “Look. No matter how many contracts or shares you do, there’s a ticket charge just to place the order.” The second way that they could do it and they could marry this with the first in some cases, is to do a per share or a per contract commission. I’ve seen brokerages do $1 per contract. Originally, there was a lot of brokerages that used to do $.10 per share or $.5 per share or a penny per share, but some sort of way to charge commission based on the scalability of the contracts and order that you’re entering. The other way that brokerages can charge commission is for just access to the platform. Now, this is not necessarily what most people are used to, but there are a lot of new brokerages that have come out and said, “Look. If you want to use our platform maybe just for options or Forex or futures trading, we just charge a flat fee to access the platform.” And you go from there and everything else is basically included.

I don’t think that’s the most standard way to do it, but it is starting to gain a little bit more traction in the space. That’s how Option Alpha is going to be run as far as technology. We’ll always have a flat fee just to access the platform and get access to the technology and then we don’t charge anything obviously for the execution because it goes to whatever brokerage you end up connecting with. Hopefully this helps out. As always, if you guys have any questions, let us know and until next time. happy trading.