Per-Trade vs. Per-Share Commission stock broker trades

As a very active trader, my commission fees run into the thousands each year.

Some years I end up paying more than other years, and it all comes down to how much trading volume I generated in that particular year.

There is no doubt that commission rates eat into profits. Here in the US, there are a variety of online discount brokers to choose from and competition among them is fierce to get your business.

One of the most important things people look for in a broker is what is their commission rate, so it is important to shop around.

Commissions are truly a cost of doing business in the stock market, particularly if you want access to a trading platform through your broker. But, you can still reduce your commission costs if you go about it the right way.

Regardless of which broker you trade through, find out if they offer a per-share pricing structure. Making the switch should save you a little money in the short term and a lot of money over the course of the year.

If you are just getting into trading stocks, you might be wondering if you should go with a flat-fee commission rate or per share commission.

When I first started out in trading stocks, I started out on the per trade flat-fee commission.

As I became a more active trader I found that the per-trade commission started to become a bit more expensive. So, I ended up switching over to a per-share commission rate.

The majority of beginner or part-time traders I know are on a per-trade commission structure, which means they pay a flat rate whether they’re buying 100 or 5000 shares.

This type of commission structure can get costly fast if the trader becomes very active and the trader begins to see precious capital erode faster. Unfortunately, this can soon lead to the trader passing up good trades out of the fear of it costing too much to enter and exit the trade. That’s too bad, especially considering that trading is a numbers game.

Per-Share Commission

In dealing with many newer traders, most of them are not aware of the per-share commission structures which many brokers offer. Rather than a flat rate per trade, you simply pay a flat rate per share, which means you pay for what you trade and nothing more.

The brokers I use and recommend (SpeedTrader and SureTrader) offers both per-share and per-trade commission pricing. I currently use the per share commission and I’ve had my commission structured that way for several years now.

Why I Like Per-Share Commission Rate

One of the biggest changes for me early on was switching my commission structure to a per-share basis vs. the per-trade commission structure I was on previously.

Now I’m paying $0.0039/share with SpeedTrader instead of my old $7.99 per trade with Etrade when I first started trading.

That change impacts my trading in a couple of ways. First, I’m not too concerned about commission costs anymore, as I have a good rate. This helps me to be a better trader and by not worrying about commissions I can make better entry and exit decisions.

Secondly, the per share structure also allows me to scale in or out of positions without racking up too much more commission costs. So that’s made it even easier for me to take partial profits or to just cut my losses when I’m in a losing trade.

Also, if you are very active trader and trade in high volume levels, per-share commissions can even be negotiated lower.

Per-Trade vs. Per-Share Commission

Lets do a little math for demonstration purpose to figure out which will be cheaper.

For example, say you have opened a brokerage account and you have the choice between a $7 per-trade commission rate or a .01 per-share commission rate.

For easy math, let’s say you have $10,000 in your stock trading portfolio. You have determined based on your position sizing strategy, that you are going to use $1,000 as risk capital in each trade.

You are looking to trade 500 shares of XYZ trading at $2 per share.

Per-trade Commission:
Since it is a per-trade commission it is a flat-fee then the commission will be $7.

Entry: $7
Exit: $7
Total: $14

Per-share commission:
Now lets take a look at the per-share commission structure.

Say for example your commission rate is .01 per share.

Entry: 500 shares x .01 = $5
Exit: 500 shares x .01 = $5
Total: $10

As you can see the per-share commission is going to work out to be the better deal.

When Per-Trade Commission Could Work in Your Favor

If your main trading style is trading penny stocks (stocks trading under $1 per share) then a flat-fee commission rate could actually work out better in your favor. The reason for that is because you are buying more shares because the price of the stock is lower.

Lets say for example that you are looking to buy a 1000 shares of a $1 stock. If your per share commission rate is .01 then it would cost you $10 (1000 shares x .01 = $10).

In this case, the flat-fee commission rate will work out to be cheaper since it costs $7 no matter how many shares you trade.

Which Commission Rate is Best For You?

In the end it all boils down to doing your math to figure out which commission rate works out best for you. And the type of commission you choose all depends on your trading style.

If you are a very active trader or day trader then I recommend going with the per share commission rate.

If you are an investor with a longer term strategy or perhaps a swing trader, then the flat-fee commission rate will probably work out best.

Someday, I would like to see brokers roll-out with some type of hybrid model, where the broker’s system will automatically execute the better commission structure for clients. Or perhaps commissions can somehow be eliminated all together. But, that would never happen as brokers need to make money to stay in business.