What Big Trades Cost Online

YOU’RE RICHER THAN YOU LOOK. Some readers have discretely inquired about the cost to trade 5,000-10,000 shares of stock or to buy 50-100 options contracts at an online broker. That’s a lot more action than the 500-share/10-contract benchmarks Barron’s uses to evaluate pricing in our annual review of the brokers ("Tools of the Trade,” March 5.) So let’s see what it costs the other half to trade.

First, these bigger-ticket items usually carry additional charges. And because they are larger, they also can lift the price of a given stock or option, which means you’re going to pay more for a market-based price. We recommend using limit orders for large blocks, or breaking them down into smaller chunks. Multiple orders might raise the cost of your trade, but you’re likely to get a better price, which will more than make up for the higher commissions.

Provided you keep enough money at the bank, trading 5,000-10,000 shares a pop will cost you nothing at Banc of America’s brokerage site, as well as Wells Trade from Wells Fargo Bank. That privilege, however, means you have to keep at least $25,000 in various accounts at BofA and an undisclosed amount at Wells. (To see a complete list of each online firm’s prices and methodology click here.)

Eleven firms have flat rates regardless of how many shares you trade: Just2Trade ($2.50), TradeKing ($4.95) ChoiceTrade ($5), FirsTrade ($6.95), Scottrade ($7), Terra Nova ($7.50), CyberTrader, Fimat Preferred Trade, OptionsHouse (all $9.95) and TD Ameritrade and E*Trade (both $9.99).

For up to 5,000 shares, thinkorswim charges $9.95. Bigger orders are charged 11/2 cents per share, which means a 10,000-share block will set you back $150. As a result, you’d probably be better off breaking that 10,000-share order down into two 5,000-share chunks ($9.95 each) at thinkorswim.

Many brokers tack on a per-share fee above their minimum. For example, optionsXpress charges $9.95 for the first 1,000 shares, then a penny per share for any additional shares. You pay $49.95 for 5,000, and $99.95 for 10,000 shares. Schwab and Fidelity will hit you the hardest for large blocks, as their 1½-cent-per-share fees kick in after 1,000 shares. You’ll pay nearly $150 for a block of 10,000 shares at either broker.

FOR THOSE WORRIED about market impact of a large trade, Interactive Brokers offers some protection, at least for large-cap stocks. It’s called Volume Weighted Average Pricing, or VWAP. You select the VWAP option when you order, and also indicate the amount of time you want to use to set the price. The price is then computed based on the average price, weighted by volume, for all the transactions in the stock over the time period you’ve selected through the close. VWAP prices are computed by Bloomberg, displayed after market close, and are guaranteed to be executed. Once a VWAP order is accepted, it can’t be canceled.

Interactive Brokers charges a penny per share for trades executed using its VWAP Dealing Network; currently over 1,200 stocks are on the network’s list. Outside of its VWAP network, Interactive Brokers charges a half-cent per share.

THERE’S EVEN MORE variation when it comes to trading large numbers of options contracts.

Only one brokerage, OptionsHouse, charges a flat rate—$9.95—regardless of the number of contracts. That makes it the best deal going. Others have either per-contract fees, or a base rate plus a per-contract fee, making them all significantly more expensive. Zecco, TradeKing, ChoiceTrade and Interactive Brokers can execute a 50-contract order for under $40, while it will run you $45-$50 at E*Trade, Schwab, TD Ameritrade, Fimat Preferred Trade, Terra Nova, Fidelity, MB Trading, Lightspeed, and TradeStation.

Siebertnet’s published rate schedule says that customers should call in with large block orders, and they’ll be personally managed by a broker. The fee depends on your overall relationship with the brokerage.

OptionsHouse is new enough that we don’t yet know its track record for price improvement and speed of execution, though. E*Trade turns out to be the cheapest “big name” broker from our list of the best online brokers: A transaction that includes 5,000 shares of stock plus 50 options contracts (such as a covered call or a protective put) would cost you $54.48. The same transaction at Schwab, the most expensive among the group, would be $120.40.

Posted by on 04/21 at 11:07 AM






Remember my personal information

Notify me of follow-up comments?

Submit the word you see below:

<< Back to main