With online trading, it pays to shop around

It's nice to know as you gas up your car or buy groceries that some things in life are still a bargain.

Online stock-trading commissions, for example. At a discount broker, also called an online or direct brokerage, you can trade stocks for as little as $1 to $29 over the Internet, depending on which firm you use, how large your account is and how often you trade. And whereas brokers used to use commission schedules that charged you a lot more for larger orders, many of them now use a flat rate.

With all sorts of daily living costs on the rise, now's a good time to make sure you're paying as little as possible to invest in stocks. Let's start with a reminder of how you benefit when you cut your trading costs.

First, and most obviously, paying less in commissions can help boost your returns. On a dozen trades per year, the difference between paying $10 and $29 per trade amounts to an extra $228 in your account. Low commissions can also help you put cost considerations aside so you can make buy and sell decisions for your portfolio based strictly on investing merit.

Several years ago, the standard online discount brokerage commission schedule was based on a $29 minimum for trades of up to 1,000 shares placed online. Lower costs were available to active traders - who make 30-plus trades per quarter - but this group represented only a small minority of customers.

E*Trade Canada intensified the level of price competition when it introduced a flat rate of $9.99 for clients who traded actively or had $50,000 in assets with the firm (with less, you pay $19.99). Very quickly, heavyweights like BMO InvestorLine, RBC Direct Investing and industry leader TD Waterhouse began to offer sub-$10 trades for clients with a total of $100,000 in assets. Note: The gap between online commissions and those for trades placed by telephone with a live agent are growing ever larger.

As far as the big firms have come in lowering commissions, they don't offer the cheapest trades around. For that, you have to try small brokers like Questrade and Interactive Brokers.

Both Questrade and IB have been around for years, primarily serving very active or professional traders who require high levels of data and flexibility in placing their trades. Questrade in particular has been trying to appeal to cost-conscious mainstream investors with a plan that offers commissions of 1 cent a share with a minimum of $4.95 and a maximum of $9.95.

IB describes itself on its website as "the professional's gateway to the world's markets," which tells you what type of clientele is being served. But the firm also has a detuned version of its trading platform, called WebTrader, which should be manageable for reasonably experienced investors who are comfortable with online investing.

The reason to consider IB is that it charges 1 cent per share to trade Canadian stocks and half a cent for U.S. stocks, with a minimum commission of $1. You read that correctly - you could, for example, buy 100 shares of a $50 TSX-listed stock and pay $1 in commissions.

Remember, though, that IB is a firm for serious traders (it doesn't even have registered accounts). You need a $10,000 (U.S.) deposit to open an account and you're subject to account fees if you don't meet requirements for a minimum level of activity. Stock market data feeds cost extra, although you can skip them.

The cheapest broker for your account depends in large part on how much money you have. With a small account, you'll pay a minimum of just under $20 at Credential Direct, E*Trade and Qtrade, or less at Questrade and IB. Most other brokers charge in the $25 to $29 range.

Many brokers now cut their cost to the sub-$10 range if you have $100,000 in assets with them, and this usually encompasses multiple accounts. If you have your registered retirement savings plan account at one broker and your registered education savings plan and cash accounts elsewhere, consider a consolidation to get up to the $100,000 mark (or, in the case of E*Trade, $50,000).

Despite the trend for falling commissions, trading costs remain on the high side at some brokers. Scotia McLeod Direct Investing charges $28.95 for up to 1,000 shares and up to 3 cents per share for trades of more than 1,000 shares. If you placed an order for 5,000 shares of a stock trading at $7, you'd pay $150. Compare that to the flat $10 commissions available elsewhere. For active traders, SMDI offers flat-rate commissions of $8.95 to $14.95.

CIBC Investor's Edge charges a minimum of $25 for market orders, where you accept or agree to pay the going market cost of a stock, or $28.95 for orders where you put limits on what you'll accept or pay. If you're an active trader, CIBC offers a deal of $395 paid upfront for 50 trades.

When choosing a discount broker, low commissions have to be balanced against the quality of service, tools and resources available. Consult The Globe and Mail's annual online brokerage survey, available on Globeinvestor.com (look for the Noteworthy headline close to the bottom of the homepage, on the right side), and check individual brokerage websites for demos and other information. Also try the ratings issued by a company called Surviscor on its website at surviscor.com.

When assessing the importance of commission costs on your portfolio, remember that the number of times you buy and sell stocks is just part of the equation. With low commissions, you can be aggressive and yet cost effective in managing your portfolio.

For example, you can cheaply use stop-loss orders, where your stocks are sold at preset prices to either lock in gains or limit losses. It's also more economical to rebalance your portfolio, which means selling down your winners and putting more into asset classes that are under-represented. One last benefit of cheap commissions: It's more cost effective to average your way into a stock, which means making multiple periodic purchases to limit the risk of making a big commitment to a stock or exchange-traded fund just before it tanks.

Discount brokers have become a lot more price competitive in the past year or so, providing a welcome price to the rising cost of so much else. Make sure you're getting your fair share.

Discount brokerage cost comparison

You're an occassional stock trader who is looking for the lowest possible costs for trading online. Here's a comparison of minimum commissions at a variety of brokers.

Minimum
Broker commission Web address
BMO InvestorLine $25 market bmoinvestorline.com
less than $100,000 in assets $29 limit
$100,000+ $9.95
CIBC Investor's Edge $25 market investorsedge.cibc.com

$28.95 limit
Credential Direct $19 credentialdirect.com
Disnat
disnat.com
less than $100,000 in assets $29
$100,000+ $9.95
eNorthern $24 enorthern.com
E*Trade Canada
canada.etrade.com
less than $50,000 in assets $19.99
$50,000+ $9.99
HSBC InvesDirect $29 investdirect.hsbc.ca
Interactive Brokers $1 interactivebrokers.ca
National Bank Direct Brokerage $28.95 nbdb.ca
Qtrade $19 market qtrade.ca
less than $100,000 in assets $23 limit
$100,000+ $9.95
Questrade $4.95 questrade.com
RBC Direct Investing
rbcdirectinvesting.com
less than $100,000 in assets $28.95
$100,000+ $9.95
ScotiaMcLeod Direct Investing $28.95 scotiamcleoddirect.com
TD Waterhouse
tdwaterhouse.ca
less than $100,000 in assets $29
$100,000+ $9.99
Trade Freedom $9.95 tradefreedom.com

Five ways for keep brokerage commissions low

1. Consolidate assets at one firm to benefit from low rates for large accounts.

2. Ask if there are any data or market access fess in addition to posted commissions.

3. If you typically trade more than 1,000 shares at a time, flat-rate commissions will save you a lot of money.

4. Hyper-active traders may qualify for lower rates than are posted here.

5. Avoid trading by phone through a live agent - it costs substantially more.