How to Buy Stocks Without Paying More Than the Commission

To buy stocks you open a brokerage account, transfer money in, type the company's name, pick an order type and confirm. One afternoon, most of it spent waiting on identity verification. What the afternoon hides is four decisions about the account itself, and the form settles none of them. The commission model you pay under, the currency the account runs in, the order type you buy with, and who besides you has a right to the account. Every broker comparison is built around the commission, and the commission is the smallest of those costs.

How to buy stocks in five steps#

The mechanics are the same at every broker:

1. Choose a broker and open the account: an application, a scan of your ID, a few questions about your experience. Verification takes a day, sometimes three.
2. Transfer money in. How long that takes depends on your bank and the hour you send it.
3. Type the company's name or its ticker, the short code the exchange uses, into the search box.
4. Choose the number of shares and the order type: market or limit.
5. Confirm. The shares appear in the account at once; the cash side settles a day or two later.

That is where most guides stop, and it is where this one would stop if the cost of buying a stock were what shows on the broker's receipt.

It is not.

Where to buy stocks, and what you are choosing#

Broker rankings compare commissions because the commission is the one number every broker quotes in the same unit. The logic holds: two orders a month for ten years is 240 commissions, and a few dollars of difference on each adds up to a sum you can see. If the commission were the only line on the receipt, the ranking would settle the whole decision.

Sounds reasonable. Except that shares do not know who you bought them through.

Your name is not on the company's shareholder register. The broker's is, or the depository's, holding the paper on your behalf, and the company does not know you exist until you show up at the annual meeting. The broker you pick changes nothing about what you own. It changes how much you pay along the way, and what happens to the account once you stop looking after it.

So my broker comparison starts not with the commission but with two questions: can the account be run in the company's currency, and what forms of account ownership does the broker offer. Commission is third. The interface is fourth, although it is the thing people talk about most.

Why does a third-place item open the four decisions? Because some brokers make you pick the commission model, and that pick decides how small an order you can place without paying for the privilege. A fixed commission is one amount per order whatever the size, usually with a minimum. A tiered commission scales with the number of shares and drops below that minimum when the order is small: cheaper for a few dozen shares, beaten by fixed once orders run into the hundreds of thousands of dollars. A portfolio counted in thousands rather than millions has one answer. Tiered can also land under its own table price, because the exchange pays for liquidity added to the book and part of that payment reaches the client.

Before any of it comes the tax wrapper. Most countries offer one, an ISA, an IRA, in Poland the IKE and IKZE, and how to choose between wrapper and plain account I covered in step two of the guide to investing in stocks. One thing carries over whatever the country: the wrapper is chosen once, the broker can be changed.

Currency conversion costs more than the commission#

The second decision has no fee table, because its cost is not a fee. Run the account in your home currency while the company trades in dollars and the broker converts on the way in, converts back on the way out, then converts again on the next purchase. Every conversion carries a spread: the difference between the rate at which the broker buys the currency and the rate at which it sells it back to you. Nothing on the receipt says so. The number is inside the exchange rate.

Say a portfolio of 20,000 in your home currency, a 0.5% spread each way and a 0.2% commission per order. Getting into dollars costs 100, once. After that, every swap of one company for another is a sale and a purchase, so under automatic conversion it is two conversions against two commissions: 1% of the amount traded in spread, 0.4% in commission. On the exchange rate the broker earns two and a half times what it earns on the fee you compared in the ranking.

Say you turn over half the portfolio in a year, 10,000 of it. That is 100 in spread and 40 in commission, or 240 in the first year counting the entry into dollars and 140 in every year after. Does that matter at all on a portfolio that size? Not today, and that is exactly why nobody works it out. The rate holds while the amount scales: at 200,000 and the same behaviour, the spread alone is 1,000 a year. The account is opened once, so a decision taken at 20,000 is still running at 200,000.

I do not know what spread your broker adds, and the commission table will not tell you. It shows up in the rate printed on the trade confirmation, next to the market rate of that day, and you have to do the subtraction yourself. The fix costs one decision at account opening: a sub-account in dollars. You convert once, at deposit, and afterwards the dollars from a sale stay dollars and wait for the next order. A broker that cannot run a sub-account in the company's currency is, in my view, reason enough to open the account elsewhere, and it is the one condition I hold a broker to without exception.

Who fractional shares are actually for#

A fractional share is part of one share recorded in your account: if a company trades at 1,200 dollars and you want to put in 120, you get 0.1 of a share. It earns its place in one case, when the portfolio is small enough that whole shares of a few expensive companies would eat all the diversification. With 2,000 dollars, instead of one share at 1,200 and the rest sitting in cash, you can hold 0.2 of a share in ten companies.

Two things you find out afterwards. Fractions are not offered on every market or in every order type, and the broker usually fills them at the market price, with no limit available. And a fraction generally cannot be moved: transfer the account and the fractional part is sold and returned as cash, which turns a piece of admin into a taxable event. At some brokers fractional trading has to be switched on in the settings first.

Market order or limit order#

The third decision is two clicks and can cost more than a year of commissions. A market order fills immediately at whatever the market happens to be offering. A limit order fills only at your price or better, and may not fill at all. Mid-session in a liquid company the difference is pennies. At the open, in a company where the gap between the bid and the ask runs to a few percent, it becomes its own line on the receipt.

Say an order of 10,000 in a small company where the best offer to sell sits 3% above the last trade. The market order takes that offer, so you pay 300 over the price on your screen against a commission of 20. One click on the wrong order type, fifteen commissions.

How do you know which limit to type? From the order book, which every broker shows next to the price: the best offer to sell is the price at which you buy right now, and a limit below it is a bid that waits for someone to accept it. The price on your screen is the price of the last trade, not the price at which anyone will sell to you. The limit turns one into the other, which means that for someone who places a handful of orders a year it is the default.

Once confirmed, the shares are yours immediately, but settlement, the actual exchange of money for paper between depositories, closes later. In the US it has taken one business day since May 28, 2024, shortened by the SEC from two. It touches you at exactly one moment: the cash from a sale can be withdrawn after settlement, not after the click.

What happens to stocks when you die#

The fourth decision is the one no how-to covers, and in my view the most expensive, because not making it costs nothing until the day it costs everything.

The mechanism lives in civil law, not in the broker's terms. A power of attorney ends with the death of the person who granted it. Polish law, where I write from, says so in as many words in article 101 § 2 of the Civil Code, and the exception has to be written into the power of attorney itself. Look up what your own jurisdiction does with this, because the broker will not raise it.

So a login and password left with a spouse in an envelope are not a safeguard. A transfer out of the account after the owner's death, even by someone who held the power of attorney while the owner lived, is an act without authority. The money waits for probate, and the shares wait with it, at a price nobody is allowed to do anything about in the meantime.

A joint account works differently. Two people have their own logins and a shared right to the assets, so if something happens to one, the other still has access and can legally dispose of the account. The cost is a double tax filing in whatever proportion you split the capital, and trust in the other person at the level where they could withdraw everything without asking. With a single account, the heir goes to the broker with proof of inheritance, translated and certified if the broker is abroad, and waits.

There is one more line on this receipt, and non-US investors tend to learn about it last. Shares of US companies count as US-situated property for the US tax authority regardless of where the account sits, and a non-resident's estate above 60,000 dollars of such property has to file a US estate tax return. How much tax follows depends on your situation and on an adviser worth asking before the first order, not after. The threshold is low, and a portfolio with a few technology companies in it crosses it sooner than most people expect.

Will you lose your stocks if the broker fails#

You do not, provided the shares sit in segregated client assets. A broker's licence requires exactly that on both sides of the Atlantic: in the EU the rules on safeguarding client financial instruments, in the US Rule 15c3-3, which makes a broker keep customer securities and cash apart from its own business. Segregated assets sit outside the bankruptcy estate. When a broker fails the regulator moves the accounts to another broker, or pays clients out what was in them. The company's shares do not vanish with the intermediary you bought them through.

The risk is fraud: fewer shares in the broker's books than on its clients' statements. That is what compensation schemes are for. In the US, SIPC covers up to 500,000 dollars per customer, including up to 250,000 in cash, and it protects against missing paper, not against a falling price. In the EU, directive 97/9/EC requires cover of at least 20,000 euros per investor; in Poland the scheme is run at the central depository, KDPW, with the limits written into the securities trading act. The two figures are not two prices to line up, because one is a ceiling and the other a floor: the American number says how much the scheme will pay at most, the European one says how little a member state may offer. The practical conclusion is the same either way. Splitting money between two brokers earns its keep only at amounts where one of these limits becomes a real constraint. Below that it is a cost with no benefit.

What a change of broker cannot fix#

The four decisions above concern the account. A fifth concerns what goes into it. A limit order will not help if you do not know what the company sells, who pays for it and what would have to happen for it to stop earning. How to read a company before you place the order I covered separately in how to analyze a company before you invest. One rule holds the piece together: the four account decisions take an afternoon and each of them can be undone by moving brokers, while the fifth can be undone by nothing and finished by nobody.

In Taufolio that step is called the Full report: one company laid out as business, management, valuation and thesis, with quotes from the filings you can check at the source. After the purchase the company does not go into a spreadsheet with a price in it, but into Monitoring, which checks the thesis after each set of results and speaks up when something happens that changes it. Why a portfolio is a different thing from a brokerage account I explain in a separate piece. If you want to see what a report looks like before the first order, start with getting started or with the product overview.