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When you buy or sell shares through a broker you’ll often have to pay a share dealing fee. This will be charged on top of any annual platform fees, though it varies by provider.
So, what’s the difference between these fees? And how can you limit the cost when buying and selling shares? Keep on reading for all the details or click on a link to head straight to a section…
Before we look at how you can cut the cost of trading shares, let’s first take a look at the difference between share dealing fees and platform fees.
A share dealing fee – or ‘dealing commission’ – refers to the cost of buying a share through an investment broker.
Such fees don’t only apply to manual trades, but also to any automatic investments you have set up.
There’s no typical share dealing fee as costs can vary massively between providers. For example, some investment brokers will charge high fees for every transaction. Others may have low fees for buying or selling shares, or may even offer a discount if you make more than a handful of trades each month.
Hargreaves Lansdown and AJ Bell are two providers that offer a discount to investors who make multiple trades.
You may have noticed that there’s been an explosion in the number of ‘0% commission’ brokers over the past few years. eToro and Freetrade are two firms that don’t charge investors a penny for trading shares through their platforms.
If you do find a 0% commission provider, it’s worth knowing that you may still be charged other fees.
For example, a fee-free provider may still charge investors for buying non-UK shares, or for depositing funds into their account.
A platform fee refers to the cost for using the services of a particular investment provider. This fee is usually a percentage of the total amount of money you have invested, but it may also be a fixed amount.
Platform fees are typically charged annually which can vary hugely between providers – as is the case with share dealing fees.
Crucially, it is rare for platform fees to be impacted by how many trades you make each month. In other words, your investing behaviour won’t have much an influence on how much you pay in platform fees.
The simple answer is competition.
Right now there are host of investment platforms eager to grow their customer base. And this is good news for budding investors. You see, competition leads to competitive pricing.
While investment platforms all need to make a profit, one of the easiest ways firms can differentiate themselves from other providers is to offer low fees.
For some providers, prioritising low share dealing fees – or even ‘0% commission’ – may be their preferred unique selling point. Other platforms may wish to entice investors with a rock-bottom platform fee instead.
While not always the case, investment platforms with a low share dealing fee often have a high-ish platform fee. The opposite typically applies too – brokers with a hefty annual platform charge may offer investors low share dealing fees.
Investing providers will usually take with one hand what they give with another – they are businesses after all! This is why low share dealing fees typically go hand-in-hand with high platform fees (or vice versa).
So, the questions you may be asking yourself are… should you go for a provider with a low share dealing fee and a high-ish platform fee? Or is it better to go with a provider with a high share dealing fee, but a low-ish platform fee?
Well… the answers aren’t exactly black and white. That’s because it depends on whether you’re an active or passive investor.
Confused? Let’s break it down…
If you prefer to pick and choose investments yourself then you can consider yourself an ‘active’ investor.
Active investors may enjoy the time it takes to research the potential of individual firms. This may involve going through pages and pages of company reports, or simply being ‘in the know’ when it comes to a particular industry or sector.
Active investors typically have faith in their ability to ‘beat the market’ with an expectation of achieving above average returns.
Day traders would also fall under the ‘active investor’ umbrella.
It almost goes without saying but investors who prefer to actively manage their portfolio are likely to make more trades than an investor who prefers to leave the hard work to others. Because of this, as a rule of thumb, if you have this investing style then it’s probably best to find a broker that has a cheap share dealing fee. That’s because the annual platform charge would be less relevant to your investing style.
If you prefer to leave the stock picking to others then it’s likely you’re a ‘passive’ investor.
It’s often the case that passive investors aren’t particularly interested in doing serious research into individual investments. Some passive investors, on the other hand, may simply have the mindset that they’d struggle to beat average returns by undertaking an active investing strategy.
This is one of the reasons why buying exchange-traded finds – such as one that tracks a major share index – is often the go-to for many passive investors.
If you consider yourself a passive investor, it’s likely you don’t buy or sell shares that often. For this reason, finding an investment broker with a low platform charge may be the best option for you. That’s simply because the cost of making individual trades won’t really be something to overly concern yourself with.
So you’ve determined whether you’re an active or passive investor – great!
The next step is decide which investment platform to go with. Here’s a comparison of investment platforms and their respective share dealing and annual platform fees.
|Investment Platform||Share dealing fee||Annual platform fee|
|Hargreaves Lansdown||£11.95 (£8.95 if you make 10-19 trades. £5.95 for 20+ trades)||None (shares only)|
|AJ Bell||£9.95 (£4.95 if you make 10+ trades)||0.25%|
|Interactive Investor||1 free per month, then £5.99 per trade||£119.88|
|Fineco||£2.95 (UK shares only)||0.25% (max)|
When it comes to choosing a provider don’t just focus on share dealing and platform fees. Some providers will charge other fees as well, such as currency conversion fees, average investment costs, and/or a charge for depositing funds. Market spreads can differ between providers too, as can the quality of customer service.
Are you new to investing? If so, take a look at our step-by-step guide on how to buy shares. Also, if you wish to grow your investing knowledge then it’s worth signing up for out fortnightly MoneyMagpie Investing Newsletter.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence. Capital at risk.
*This is not financial or investment advice. Remember to do your own research and speak to a professional advisor before parting with any money.