Transaction fee

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Investors and traders make a transaction - and incur a fee - when they either buy or sell a security or investment product. Transaction fees are usually highest when purchasing, especially from a full-service brokerage, but selling can also incur a small charge.

Buy Side

Transaction fees for buying securities or products are usually called sales loads or commission and are charged by brokers on almost all sales, either separately or combined. Proliferating Internet-based discount brokers have significantly lowered this charge by reducing their operating costs but even some low-cost brokers like Vanguard that offer 'no-load' mutual funds also charge a fee of $20-$75 each for purchasing funds offered by outside providers.[1]

Active traders who rack up more transactions per month than the average buy-and-hold investor are generally discouraged from using brokers that charge separate fees for each transaction as well as upfront loads, backend loads and short-term trading/early redemption fees. Popular discount brokers Scottrade and TD Ameritrade are both rated highly as especially competitive in these areas [2] with separate individual transaction fees of $7-$13 per trade.[3]

Sell Side

Many traders and investors aren't aware that they incur fees when they sell a security or fund, yet a lot of brokers still charge what is usually called an 'SEC fee', named for the U.S. industry regulator. However, the SEC imposes this small fee, often only a few cents, not on individual investors but on self-regulatory organizations like security exchanges, which pass some of this cost onto brokers.[4] Brokers in turn shift responsibility for paying the fee onto their customers.

References

  1. Don't Pay Your Broker for Free Funds. Motley Fool.
  2. Mutual fund companies and investment brokers suggested to help you minimize transaction costs. Confident Investment Strategies.
  3. Compare Brokers. Motley Fool.
  4. "SEC Fee" — Section 31 Transaction Fees. SEC.