How to Calculate Commission on Stocks
Whether closing out a trade with a profit or loss, you always pay a broker commission. Investors can choose between online full-service firms that offer stockbroker trade assistance and advice or go with a no-frills do-it-yourself platform. Investors need to compare commission rates to be sure they are getting the best rate based on their trading needs.
Use your computer to search for online stock brokerage firms. Separate them into full-service brokers and discount brokers. Full-service brokerage firms have stockbrokers who will help you place your trades and provide investment advice. Alternatively, you can place your money in a professionally managed account that will invest your money for you. Full-service firms charge higher commissions to offset their higher service costs.Step 2
Select a no-frills brokerage firm if you are comfortable making your own investment decisions. You can conduct your own research, access sophisticated charting features and place your trades using the online platform. Discount firms have stock brokers on staff, but they can only help you place a trade. They will not give you investing or trading advice.Step 3
Decide which type of brokerage firms fit your trading needs. Go to each firm’s website and find the commission schedule. Compare not only the commission rate but the services each firm offers. Check to see if there are additional fees for trading odd-lot shares, penny stocks or foreign stocks. Be sure the firm does not charge a fee if you trade infrequently.Step 4
Use your calculator to compute the commission for one completed trade. If a self-directed broker charges $7.99 to open the trade, it will cost you an additional $7.99 to close the trade for a total of $15.98 ($7.99 x 2) in commission fees. If a broker chargers $32 to place your trade, you will pay a total commission of $64 ($32 x 2).Step 5
Looking at an example, you decide to buy 100 shares of XYZ stock trading at $20 a share for a total of $2,000 plus the $7.99 commission. You decide to sell the stock a few days later for $21 a share, or $2,100 plus $7.99 commission. You made $100 on the trade but after paying two commission fees, net only $84.02.
- Ask the brokerage firm if high-frequency traders receive a discount on the commission.
- Some discount brokers offer low commission rates but add costs and fees to each trade. Find out exactly what the total commission is before opening and funding an account.
Based in St. Petersburg, Fla., Karen Rogers covers the financial markets for several online publications. She received a bachelor's degree in business administration from the University of South Florida.