Adjusted strategy for the new year: Reduce expenses with brokers, increase returns
Streamlined Stock Trading: The Truth Behind Neobrokers
Digital-first, app-based stock trading platforms, known as neobrokers, are causing a stir in the financial world, luring customers with the tagline "zero fees." However, before you jump on the bandwagon, it's essential to understand the hidden costs lurking behind this seemingly beneficial model. BÖRSE ONLINE has conducted an in-depth analysis of the top neobrokers, helping you make an educated decision.
"Trade Smarter, Not Harder" - That's the neobroker motto. But as we all know, nothing in life is truly free. To put it simply, stock trading isn't free either. When customer fees are nonexistent, they're compensated elsewhere. Common services that are complimentary with traditional online brokers come at a premium with neobrokers. For instance, attending an annual general meeting could cost between 10 to 25 euros. Despite these extra costs, neobrokers offer significant advantages for numerous types of investors, especially short-term traders and day traders. The meager trading fees can make a substantial difference in their returns. Even long-term investors who employ the buy-and-hold strategy benefit: if the cost per trade is just a few cents to 1 euro, the long-term net return is significantly boosted.
As the end of the year approaches, many investors realize the substantial costs they've incurred through their neobroker. A good time to reassess and consider switching to a more affordable provider. To make this transition as straightforward as possible, BÖRSE ONLINE has conducted a meticulous neobroker comparison, focusing on 9 evaluation criteria: range of services, costs and fees, single order, stock trades, ETF trades, savings plans, fund trades, crypto trades, and security. Additionally, an overall score is provided to aid an informed decision. This way, you can confidently pick the neobroker that best matches your needs and effortlessly build your stock portfolio.
Make an Informed Decision with the BÖRSE-ONLINE Neobroker Comparison. Whether you're a novice or an experienced trader, the right neobroker will help kickstart the new year and help you grow your wealth in the long term.
Find Your Ideal Neobroker Now
Enrichment Data Insights
Neobrokers' allure of "zero fees" may catch your eye, but several hidden costs should be considered when compared to traditional online brokers.
Hidden Costs of Neobrokers
- Order Flow Payments: While neobrokers don't charge commissions, they may make money by selling clients' order flow to high-frequency trading firms (payment for order flow, or PFOF). This could potentially erode returns over time.
- Currency Conversion and Withdrawal Fees: Although trades may be free, some neobrokers charge for currency conversion or withdrawals, especially when dealing with multiple currencies or international assets.
- Overnight Funding Fees: For leveraged products, such as CFDs, neobrokers may charge overnight funding fees, which can add up if positions are held for extended periods.
- Inactivity Fees: While some neobrokers have eliminated this, others may still charge an inactivity fee if an account remains dormant for a certain period.
- Third-Party Bank or Card Fees: Deposits and withdrawals may be free at the broker level, but third-party banks or payment processors may charge their own fees, which are outside the broker’s control.
- Hidden Spreads and Price Markups: Some platforms may widen spreads or add markups to prices, which isn't always transparently disclosed to users.
Comparison to Traditional Online Brokers
| Feature/Cost | Neobrokers | Traditional Online Brokers ||-----------------------------|----------------------------------|------------------------------------|| Trading Commissions | Often zero | May charge per trade or per share || Order Flow Revenue | Common via PFOF | Less common, more direct execution || Execution Quality | May be impacted by PFOF | Generally better, more transparent || Currency Conversion | May charge hidden fees | May charge, but often transparent || Inactivity Fees | Sometimes present | Sometimes present, varies widely || Overnight/CFD Fees | Common for leveraged products | Common, but usually disclosed || Deposit/Withdrawal Fees | Usually free, but third-party fees may apply | Sometimes charge, but transparent || Access to Markets | Often limited to stocks/ETFs | Broader (options, futures, OTC) || Customer Support | Basic, mostly digital | More robust, sometimes phone/chat |
Key Takeaways
- Neobrokers can be attractive for minimal costs and simplicity, but they may disguise fees in spreads, order flow practices, or ancillary charges like currency conversion.
- Traditional online brokers may have clearer pricing and better execution, but often charge direct commissions and may have a more complex fee structure for advanced services.
- Both types of brokers may charge inactivity or account fees, but this varies widely between platforms.
The hidden costs of neobrokers, beyond the advertised "zero fees," include order flow payments, currency conversion fees, withdrawal fees, overnight funding fees, inactivity fees, third-party bank or card fees, and hidden spreads or price markups.
When comparing neobrokers to traditional online brokers, keep in mind that while neobrokers may offer zero trading commissions and simpler interfaces, they could have fees hidden in spreads, order flow practices, or ancillary charges like currency conversion. On the other hand, traditional online brokers may have clearer pricing and better execution but often charge direct commissions and have a more complex fee structure for advanced services.
