Stockbroker Excellence: Trading Commission

Our stockbroker excellence articles are a series of short blog posts which each focus on a different factor that makes the best UK stockbrokers the very best. Read on to learn more about trading commission and the differences between UK brokers in terms of the size and calculation basis for trading commissions.

Reading the full series will help you to understand how to rate and compare UK stockbrokers yourself, and choose the perfect investment partner.

Or let us do the hard work for you. We’ve ranked and rated the best UK stockbrokers on our stockbroker comparison page. We’ve also compared the best stocks & shares ISAs and UK investing apps.

So if you want to see who we rate highly, visit those guides now. If you’d like to understand more about the factors which set brokers apart from one another, continue to read on.

What stockbroker trading commission?

Trading commission goes by many names. We’ll list as many iterations as possible below:

  • Trading/dealing commission
  • Execution fee
  • Broker fee
  • Trading fee
  • Share dealing charge/fund dealing charge

All of these terms refer to the charge a stockbroker will deduct from your account each time you place a trade through the brokerage.

A trade can be a buy or a sell order. This means that to buy, hold and eventually sell an investment, you may need to pay two lots of trading commissions.

How much do stockbrokers charge in trading fees?

Trading fees vary significantly from broker to broker. You’ll find them clearly quoted on the website of any UK stockbroker, which makes it easy to compare prices between rival firms.

Some of the best FCA regulated brokers charge nothing to trade, whereas others charge up to £11.95 to buy shares. This wide range in prices makes trading fees a huge point of differentiation when looking at broker offerings side-by-side.

Our stockbroker reviews explain the fees and charges for the UK’s top stockbrokers:

Why do some firms charge zero trading fees?

Some stockbrokers, such as eToro and Trading212 (see Trading212 review) famously don’t charge a penny for placing a trade. How are these brokers still in business?

The answer lies in the falsehood that trading fees are how modern stockbrokers make their money. In reality, there are many income streams and trading fees are only one of them.

They lean on other revenue-generating service lines, such as Contracts for Difference, which are comparably lucrative for brokers to offer, as they incorporate various fees.

They maximise trading between their own clients, which don’t utilise an external exchange and therefore don’t incur any external trading costs.

Bloomberg has reported that one firm (US Brokerage Robinhood) has been known to sell data about upcoming investor trades to outside groups such as hedge funds, who are able to use that data in a split second to gain an advantage in the stock market. Such activity (which would involve the trader selling shares before a large broker sell trade hit the market, or buying shares before a large broker buy order hits the market), means that the original brokerage client may get a worse price than otherwise. This practice is not believed to be commonplace, but Bloomberg’s report indicates that this does occur.

Do trading fees actually matter?

It’s important to establish whether trading fees are actually relevant to you as an investor, before you choose a broker.

If you are investing a single lump sum, then you will only place a single trade. This minimises the impact of trading fees upon your investment returns.

However, if you’re planning to trade regularly (e.g. 20 trades per month), then even a small difference in trading fees will really add up over the course of a year.

If you decide to invest exclusively through index funds, you may never pay a share dealing charge in your investing career. This takes that particularly charge off the table when comparing brokers. Many firms charge different dealing fee for buying into funds, so it’ll be important to look at the fees & charges of each broker very carefully.