Regarding full service brokers:
1. The maximum allowable fee is 5% on a NASDAQ stock and 2 1/2% on a NYSE stock. The fee is negotiable. If you ask the broker for a better rate and he says no, find another broker or pay up.
2. If the firm makes a market in the stock, they can get the stock under the ask if they are buying. When the firm charges the client a fee after they buy the stock under the ask, it is called a 'markup'. So you need to understand the difference, and you need to let your broker know that you understand. The maximum charge, including markup and commission, is still 5% on the NASDAQ stock.
3. It has happened in the past that firms charge more than 5%. If you bought 1000 shares of a stock that was 5 3/4 by 6, and you paid a fee for it, the maximum is $300.00, 5%. If the firm you dealt with makes a market in the stock, and paid 5 7/8 for the stock, (under the ask) and you were charged $6,300.00 for the trade, then you got screwed. You need to find out the commission and the markup total.
4. Take a look at the penny stock quotes and you will see how the market makers make their money. If you buy a penny stock that is 8 cents by 10 cents, pay 10 cents, and you buy it from the firm that makes the market, then that firm is bidding 8 cents. You are down 20% the moment you make the purchase, and you just might be giving that 20% to the firm, and the broker is taking about half of that (50% is the usual split). Ten grand on that stock at the ask, and you are buying 8 grand worth of stock and maybe giving the firm a grand and the broker a grand for the trade if they charge "no commission"!.
5. Don't do business with a firm you don't trust. Don't place an order with a broker that doesn't understand what his job is. If your story is true, that broker broke the law. Your mistake was doing business with a broker that was not tuned in to your intentions.
6. If you don't know the rules, you will get screwed. Whose fault is that?
7. There are good, reputable, honest and smart brokers. If you find one, pay him the 5%, he's worth every penny. |
