What Is a Brokerage Fee? How Fees Work and Types

Brokerage Fee

Investopedia / Danie Drankwalter

What Is a Brokerage Fee?

A brokerage fee is a fee or commission a broker charges to execute transactions or provide specialized services on behalf of clients. Brokers charge brokerage fees for services such as purchases, sales, consultations, negotiations, and delivery.

There are many instances of brokerage fees charged in various industries such as financial services, insurance, real estate, and delivery services, among others.

Key Takeaways

  • A broker or agent charges a brokerage fee to execute transactions or provide specialized services.
  • Brokerage fees are based on a percentage of the transaction, as a flat fee, or as a hybrid of the two, and vary according to the industry and type of broker.
  • The three main types of financial securities industry brokers that charge brokerage fees are full-service, discount, and online.
  • Today, many online brokerage platforms offer $0 brokerage fees for listed stocks and ETFs.

Understanding Brokerage Fees

Brokerage fees, also known as broker fees, are based on a percentage of the transaction, as a flat fee, or as a hybrid of the two. Brokerage fees vary according to the industry and type of broker.

In the real estate industry, a brokerage fee is typically a flat fee or a standard percentage charged to the buyer, the seller, or both. Mortgage brokers help potential borrowers find and secure mortgage loans; their associated fees are between 1% and 2% of the loan amount.

In the insurance industry, a broker, unlike an agent, represents the interests of the customer and not the insurer. Brokers find the best insurance policies to meet customers' needs and will charge fees for their services. In rare instances, brokers may collect fees from both the insurer and the individual buying the insurance policy.

In the financial securities industry, a brokerage fee is charged to facilitate trading or to administer investment or other accounts. The three main types of brokers that charge brokerage fees are full-service, discount, and online.

Stock Brokerage Fee Breakdown

Full-Service Brokerage Fees

Full-service brokers offer a wide range of products and services such as estate planning, tax consultation and preparation, and other financial services. As a result, they earn the largest brokerage fees. Not so long ago, it was not uncommon for a full-service broker to charge upward of $100 per trade for orders placed with a human broker.

The standard commission for full-service brokers today is between 1% to 2% of a client’s managed assets. For example, Tim wants to purchase 100 shares of Company A at $40 per share. Tim's broker earns a commission of $80 for facilitating the transaction ($40/share x 100 shares = $4,000, $4,000 x .02 commission = $80). When the commission is added, the total cost of the trade is $4,000 + $80 = $4,080.

A 12B-1 fee is a recurring fee that a broker receives for selling a mutual fund. The fees range from 0.25% to 1.00% of the total value of the trade. Annual maintenance fees range from 0.25% to 1.5% of the assets.

Discount Brokerage Fees

Because discount brokers offer a narrower selection of products and provide no investment advice, they charge lower fees than full-service brokers do. Discount brokers charge a flat fee for each trade transaction. The per-trade flat fee ranges from less than $5 to more than $30 per trade. Account maintenance fees are usually around 0.5% per year based on assets held.

Online Brokerage Fees

Online brokers have the least expensive brokerage fees. Their primary role is to allow investors to conduct online trading. Customer service is limited. Many online brokers have removed a specific commission fee for trades on stock shares, but commission fees for options or futures trades still apply. The fees vary and may be based on a per-contract or per-share charge. Account maintenance fees vary between $0 to $50 per account per year.

Reduction of Brokerage Fees to Zero

Investors can reduce account maintenance fees by comparing brokers, their provided services, and their fees. Buying no-load mutual funds or fee-free investments can help avoid per-trade fees. It is important to read the fine print or fee schedule and ask questions about any fees charged.

Today, many online platforms like Robinhood offer $0 trading in many stocks and ETFs (as well as many others that have since joined the commission-free movement). The disappearance of outright brokerage fees for trades has been the result of intense competition resulting in fee compression. These services instead make money by selling your order flow or loaning your stock positions to short sellers.

Fees for money management have also been compressed through online services called roboadvisors, which use algorithms to automatically establish and maintain an optimal investment portfolio. These services charge far less than a human advisor, generally between 0.25% and 0.50% per year based on assets held, with some even lower.

Is It Normal to Pay a Brokerage Fee?

Traditionally, most investors and traders had to pay fees to their brokers to execute trades and maintain their accounts. With the advent of Internet-based trading, online account management, and fierce competition among brokerage firms, today's fees on most stock and ETF trades have dropped to zero at several platforms.

Which Brokers Charge $0 Fees on Stock Trades?

Robinhood was one of the first large online broker to offer free trading in stocks and ETFs in 2013 when its app officially launched. Since then, many brokerages have followed suit, including Charles Schwab, Fidelity, Merrill Edge, E*TRADE, Interactive Brokers, TD Ameritrade, Webull, J.P. Morgan, Vanguard, SoFi, and Ally Invest (among others).

Note that many of these platforms still charge commissions for trading in OTC stocks, options, futures, or other non-stock securities.

What Is a Typical Commission for Options Trades?

Many brokers charge a fixed commission plus a per-contract fee for options trades. This could be something like $5.95 + $1.00 per contract (so, the total fee on a 10-lot trade would be $5.95 + $10 = $15.95). The exact commission structure will vary based on your broker and the level of trading that you do with them. For example, E•TRADE charges $0.65 per contract but reduces it to $0.50 per contract for accounts with more than 30 trades in a month.

What Is the Typical Brokerage Fee for a Real Estate Deal?

Realtors and real estate brokers typically charge around 5% to 6% of the selling price of a house. This is often split between the seller's agent and the buyer's agent. Some discount real estate brokerages may charge a lower rate or instead offer a fixed-fee service.

The Bottom Line

Brokerage fees are the cost of doing business with a broker and can take away from the returns of your portfolio. When choosing a broker, take the time to assess the services you're receiving and whether the cost of those services benefit you. Additionally, consider if any other fees are necessary or just in the interest of the broker. Today, through online brokers, brokerage fees for simple stock investing are very low or nonexistent, allowing you to keep larger portions of your investment returns.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. Robinhood. "Trading Fees on Robinhood."

  2. E-Trade. "Pricing and Rates."

Compare Accounts
×
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.
Provider
Name
Description