Until the 1990s, stockbrokerage commissions were virtually always percentages. Although high-volume traders could get better rates, the general rule was the more you traded, the more you paid. Today's marketplace is very different. Financial deregulation and shifts in consumer demands have brought down the prices of securities transactions and resulted in flat rate commissions. Of course, there are some variations, and percentage commissions still exist in certain brokerages and account types.
In the 1990s, discount brokerages developed, offering trades at low, flat rates. They offered investors the ability to pay per transaction -- including any number of shares per trade. As the Internet and associated technologies developed, brokerages created online account management and trading interfaces. Today, many firms offer lower trade fees for online transactions than they do for broker-assisted or telephone ones.
Discount Flat Rates
When flat rates began, $20 per transaction was normal. Over time, brokerages dropped to $15, $10 and now around $8.99 per transaction. Of course, these rates apply to self-service trades. Those who want the advise and assistance of a broker often pay more -- frequently $20 to $25 per trade -- these additional fees go to pay the broker.
Because of low trade volumes and the reduction in active investors following the economic crisis of 2008 and 2009, many brokerages developed accounts with wrap or flat fees. Rather than charge per transaction commissions, account holders can order trades for free and instead pay an annual account fee of 2 to 3 percent of their holdings. Accordingly, an account holder with $100,000 worth of investments and a 3 percent annual wrap fee pays $3,000 a year. Brokerages like this because it creates guaranteed revenues while investors feel they are getting a deal on per-transaction commissions.
Investors can occasionally avoid commissions altogether when buying bonds and mutual funds directly from the issuer. This approach to investing requires more work on the part of an investor, who has to identify companies that sell directly, evaluate their safety and performance and make contact to make their own purchases. However, for the investor dedicated to cutting out commission expenses, such investments can be good deals.