The “Hidden” Trading Costs

By: ispeculatornew
Date posted: 07.07.2011 (5:00 am) | Write a Comment  (0 Comments)

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When is the last time that you took an airplane? A decade ago, buying a plane ticket gave you a good idea of how much you would be paying for your trip. These days, the plane ticket is only part of the story. Checked-in and carry-on luggage, drinks, food, online entertainment (tv, internet), additional legspace, earplugs, etc. The airlines do their best to squeeze as much money out of their customers as they can. Why wouldn’t they? Most customers only look at one thing when booking flights– the cost of their ticket. It’s a simplified way of looking at things and I guess that is what most of us end up doing.

If you were shopping for an airline, which ticket would you buy between these two?

-Airline #1 – $305 round trip (+$45 for 2 checked in bags)
-Airline #2 – $325 round trip (free checked in luggage)

The sad truth is that most of us would end up going for airline #1 simply because we would not research the costs involved in the luggage. Some airlines such as Southwest run tv ads about their free check ins but in most cases, unless you spend a half hour researching the costs, you will never know.

Same Applies To Trading

I always find it interesting when brokers advertise their low commission rates, the $4.95/trade rates. Don’t get me wrong, those are great. However, if you end up paying all kinds of other costs to transfer money, higher rates on your margin, you receiving lower interest on your cash balance, pay higher spreads on currency conversions, switching brokers might very well be a losing proposition.

Commission Rates Matter

Don’t get me wrong, it’s important to shop around. However, knowing that you will likely switch brokers only a few times, it’s probably worth the time to research all the costs and services involved before going ahead instead of simply looking at the commission rate advertised. When it looks too good to be true, it usually is.

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