Are zero commission trades actually free?

Not always. Brokers advertising free trades often profit by widening the bid-ask spread or charging high foreign exchange fees.

What is a spread in trading?

A spread is the difference between the bid and ask price. Brokers can widen this difference to generate revenue indirectly.

What are maker and taker fees?

Makers add liquidity to the market and usually pay lower fees, while takers remove liquidity and pay higher fees. These accumulate rapidly for active traders.

Slippage is when your execution price differs from the expected price, which often happens with market orders in volatile markets.

Types of Trading Fees and Hidden Costs

Traders face several fees that eat into returns, even on platforms advertising free trades. Common costs include brokerage commissions, maker/taker fees, spreads, and foreign exchange fees.

Brokers charging zero commission often make their money through wider spreads or other hidden costs, meaning you still pay somewhere.

Active traders can accumulate massive costs from maker, taker, and volume fees, while infrequent traders need to watch for foreign exchange charges on international assets and account maintenance fees.

Types of Trading Fees and Hidden Costs — infographic

When trading, expect to encounter various fees that can significantly impact your overall returns, even on platforms advertising "free trades." These fees typically include brokerage commissions, maker/taker fees, spreads, and FX fees.

Brokerage Commissions

Per-transaction fees: Some brokers charge a direct fee for each buy or sell order, which can vary based on the asset and platform. "I have a much smaller portfolio and use IBKR. It’s really affordable - fees are about $0.30 per buy and $0.70 per sale."

Volume-based fees: Fees often depend on the trading volume, with higher volumes sometimes leading to lower per-unit costs. "Correct, the fees depend on volume: IBKR Pro (Tiered): Low commissions for high-volume traders, ranging from $0.0005 to $0.0035 per share."

Hidden costs: Even if a broker advertises zero commissions, they might still profit by charging other entities or through wider spreads. "you’re paying the same costs they’re just masked as something else"

Maker/Taker Fees

Differential pricing: These fees distinguish between "makers" and "takers", with takers generally paying higher fees. "value. Typically 0.02 maker /"

Impact on active traders: For day traders, these fees can accumulate rapidly, making up a significant portion of their annual costs. "If you’re doing something like ~$5M monthly volume (which isn’t crazy if you’re active on perps), you’re probably paying somewhere around $1k–$2.5k per month in fees depending on your setup."

Spreads

Bid-ask difference: The spread is the difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to accept (ask). "The difference between bid and ask price."

Indirect fees: "Free" brokers often widen the bid-ask spread to generate revenue, effectively making it an indirect fee. "'Free' brokers usually have just a little wider spreads than the actual market to finance themselves."

Slippage: Market orders can experience slippage, where the execution price differs from the expected price, especially in volatile markets, increasing the effective cost. "Price that you decided to sell and the actual fill is probably not going to be the same, depending on the order type."

Other Potential Fees

FX fees: When trading international assets, currency exchange fees can be substantial and are often overlooked. "Stake and Superhero advertise as FREE TRADES, but their foreign currency exchange FX fees are enormous."

Regulatory fees: Government or regulatory bodies may impose small fees on trades, though these are typically negligible for individual investors. "The FINRA fee is $0.000119 per share, with a maximum of $5.95 per Trade."

Account maintenance fees: Some brokers might charge fees for maintaining an account, though many offer waivers for paperless statements or certain account balances. "Many have no ongoing maintenance fees if you sign up for paperless statements."

Have you calculated your total trading fees for the year?