It's time to check out on-line trading fees

00:00 EDT Wednesday, August 14, 2002

These are interesting times for the cost-conscious on-line investor.

Whereas on-line brokers all used to be within a few dollars of each other in trading commissions, now a large divide has opened up between the cheapest and most expensive players. If commission costs matter to you, and they should if you're an active investor, then now's a good time to evaluate how much you're paying and whether you can get a better deal elsewhere.

As of Sept. 15, the priciest on-line broker will be Royal Bank Action Direct, which is the second-largest player in Canada behind TD Waterhouse. Action Direct has announced it will raise its minimum commission (for trades of up to 1,000 shares) to $29.95 from $29, which is the same price as Waterhouse, Merrill Lynch HSBC and Sun Life Securities.

At the other end of the scale is tiny eNorthern, with a minimum on-line commission of $24, and CIBC Investor's Edge with a $25 minimum. Several other brokers charge $25 or thereabouts for market orders, but add a couple of dollars extra for limit orders. Market orders mean you'll pay or receive the going market rate for a stock, while a limit order allows you to put a ceiling on what you'll pay and a floor on what you'll accept.

Here are some examples of how the different pricing for market and limit orders works: ScotiaMcLeod Direct Investing charges $25.95 for market orders of up to 1,000 shares and $28.95 for limit orders. BMO InvestorLine charges $25 for market orders and $29 for limit orders. There's also a middle ground charge of $27 for market and limit orders, which is used by E*Trade Canada and Qtrade Investor.

Many brokers offer lower commissions to very active traders, but E*Trade has been particularly aggressive in this regard by cutting costs to as little as $19.99 a trade through its Power E*Trade package. Be warned: You'll have to make at least 75 trades each quarter to qualify for this low rate.

If you're an active trader in U.S. stocks, you'll definitely want to check out the phenomenally low commissions charged by Interactive Brokers, a U.S. direct-access broker that recently set up shop here (direct access means your orders are executed faster than with traditional on-line brokers).

The usual practice among Canadian on-line brokers with respect to U.S. stocks is to take their regular commissions and convert them to U.S. dollars. Thus a $29 (U.S.) commission becomes $43 (Canadian), or thereabouts. Interactive charges one cent (U.S.) a share for orders of 500 or fewer shares and half a cent for orders above 500 shares. If you bought 1,000 shares, you'd pay all of $7.50 in commissions.

One thing to be aware of is that Interactive will charge an inactivity fee of as much as $3 a month if you don't generate $30 in commissions a month. Interactive offers a variety of market data services that will be of interest to hard-trading types, but there are few other amenities and no access to Canadian markets. Obviously, then, registered retirement savings plan accounts are unavailable.

If you're strictly an occasional trader doing half a dozen or so trades a year, then the price differential between the cheapest and most expensive brokers probably isn't enough to justify the annoyance of switching brokers. If you're a more active trader, though, you could be wasting money on commissions. Now is a great time to see if this is so.

Copyright © 2002 The Globe and Mail

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Comments? Come on, everyone has an opinion about who the best and worst brokers are. Send your thoughts to rcarrick@globeandmail.ca