How Do Online Brokers Charge?

Using an online broker is the next big thing, and many people have found it very cost efficient to switch from full service, or even discount brokers to online brokers, as they save tons and tons of money. Online brokers act as simply a platform on which to do your transactions, whether those are trades, buying, or selling.

So the question comes, what is the fee, or in other words, how do online brokers charge?
Unfortunately there is not just one straight answer for that, as it varies from broker to broker. However, here are five general ways inwhich brokers charge you for transactions and their services:

1. Flat fee: This is where the online broker charges you a set amount for their services, whether you are buying and selling high priced stocks, or penny stocks.
2. Per Trade or transaction: This is much like a flat fee, as it is a fee based on the number of trades you do, and has no bearing on the volume of trades or the item being traded. However, be aware of what you get for that price. Some online brokers charge extra for real-time stock price quotes, research, issuing a stock certificate, making large trades, letting you talk to a human broker or using telephone features. So, if you are paying a flat fee, or a per trade fee, know what is included under the umbrella of that fee, and what is extra. If your broker's transaction fees are too high -- and Schwab's run between $49.95 and $164.95 a trade -- switch to a broker that charges less. For instance, OptionsXpress only charges $14.95. There is a lot of variance in the price that online brokers charge per transaction, so don't just avoid transaction fee brokers all together, just find one that charges a price that seems reasonable to you.
3. For advice: online brokers are not usually in the business of giving advice, doing research etc. If that is what you want, then you pay for that, but you are most likely using an online based discount broker, like Charles Schwab, or any number of other online discount brokers. In these cases, you pay for the brokerage service, but you also pay extra for research, etc.
4. Exit Fees: Like with full service brokers, online brokers sometimes charge an exit fee, well almost always. So, do your research because if you decide to switch your online broker later on, chances are you will be charged. Before signing up with an online broker check how high the exit fee is. Does it seem reasonable? If the charge is per holding, it could be expensive to change brokers, especially if you hold a large number of shares, so do your due diligence and know your options before signing on to anything.
5. Fund charged fees: Some online brokers don't charge you, the investor, directly for the convenience of buying and sell funds, they do charge the funds. A fund must pay a broker roughly 0.30% to 0.40% annually of the amount investors hold through the broker in that fund. So, what does this mean to you.well, it means that you get offered funds without a transaction fee. What does it mean to the broker? Well, they get a lot of money, considering that the average no-load fund charges total expenses of just 0.90% annually. But the system is fair because the fund pays the broker, who brings it assets, who get the fund without a transaction fee. The downside is that such funds charge higher fees because they participate in these programs, so if you tried to invest directly with the fund, and skipped the broker, it could still be expensive.