Hidden Trading Costs to Know

This page has trading fees explained in the order you usually meet them, from the moment you buy to the years you hold. Returns are uncertain, but costs are close to certain, which makes them one of the few parts of investing you control. We use illustrative numbers throughout so you can follow the arithmetic.

Commissions and dealing charges

A commission is a charge per order, either a flat amount or a percentage. Many brokers now advertise commission-free trading in some markets, but that does not mean the trade is free; the cost may sit in the spread, the exchange rate or other fees. Flat charges hit small orders hardest: an illustrative $5 commission on a $500 purchase is 1% before the share has moved at all.

The spread

Every market has a buying price (ask) and a selling price (bid). The difference is the spread, and you pay it whenever you buy and later sell. Suppose a share is quoted at $99.95 to sell and $100.05 to buy. If you buy 100 shares and immediately sell them, you lose 100 × $0.10 = $10, even though the market "price" never changed. Spreads are tight in large, busy shares and funds, and wider in small companies, outside main trading hours and in fast-moving markets.

Currency conversion

Buying shares priced in another currency means converting your money, and brokers usually add a margin to the exchange rate. At an illustrative 0.75%, converting $4,000 costs $30, and you pay again when converting back. Because the fee is built into the rate, it rarely appears as a separate line. Our broker checklist suggests checking this before anything else if you plan to buy overseas shares.

Fund charges: the cost that compounds

Index funds and ETFs charge an annual ongoing charge, also called the expense ratio or total expense ratio, taken from the fund's assets. You never see a bill; it simply reduces the return. For a long-term holder, this is often the largest cost of all.

An illustration: $10,000 invested for 20 years in a fund whose investments grow at 6% a year before charges. With a 0.20% annual charge, the net growth is 5.8% a year and the pot reaches about $30,883. With a 1.00% charge, net growth is 5.0% and the pot reaches about $26,533. The difference, about $4,350, comes from a gap of less than one percentage point a year. (This simplified model subtracts the charge from the growth rate; real returns vary every year and are not guaranteed.)

Platform, custody and account fees

Some platforms charge a yearly fee to hold your investments, either flat or as a percentage of the account value. Others charge for particular account types, for transferring your holdings to another provider, for paper statements or for inactivity. A percentage platform fee sits on top of fund charges, so the two should be added together when comparing providers.

Taxes and levies on trades

Some countries charge a tax or levy when you buy shares; the UK, for example, applies stamp duty to purchases of most UK-listed shares, and regulators and exchanges in several markets add small transaction fees. These are usually listed in the broker's fee schedule. They are separate from tax on dividends or gains, which depends on your own circumstances.

Costs of leveraged and short-term trading

Trading forex, indices or shares through CFDs or spread bets adds a different set of costs:

• Overnight financing (swap) on positions held past the daily cut-off, based on the full position size, not the margin. Over weeks or months it can outweigh the spread.
• Wider spreads around news releases and at the daily rollover.
• Guaranteed stop premiums, charged by some providers for a stop that will not slip.

These costs are built for short holding periods and punish long ones. The margin calculator and pip calculator help translate them into money.

The quiet cost of uninvested cash

Money sitting in a brokerage account waiting to be invested may earn little or no interest, while the platform may earn interest on it. That is not a fee on your statement, but it is a cost compared with cash held elsewhere. If you hold a cash balance for long periods, check what rate, if any, the platform pays and whether a dividend reinvestment option would put income back to work automatically.

Crypto fees

Crypto platforms charge trading fees or embed a spread in "instant buy" prices, may add a card payment charge, and pass on network fees when you withdraw. On-chain network fees vary with demand and are paid in the blockchain's own coin. Our crypto profit calculator applies a fee on both the buy and the sell so you can see the break-even price.

A simple cost audit

1. List every charge on your provider's fee schedule that applies to how you actually invest.
2. Convert each to an annual amount in money, using your expected account size and number of trades.
3. Add the ongoing charges of the funds you hold.
4. Compare the total with the same activity at one or two other authorised providers.

Many providers in the UK and EU must also send an annual costs and charges statement showing what you paid in money terms. If you receive one, compare it with your own estimate; a large gap usually means a cost you had not noticed.

Doing this once a year takes an evening and can be worth more than any amount of stock market news watching.