Your broker is not your pal

Your bro­ker is not your pal.

I hold part of my port­fo­lio on an online bro­ker called eToro. eToro is spe­cial among online bro­kers in that users can talk to each oth­er through some­thing called a News Feed.

In the news feed, you can find peo­ple some­times com­plain­ing about the eToro plat­form. They accuse eToro of dis­abling cer­tain func­tion­al­i­ties tem­porar­i­ly or not hav­ing a stop loss option for cryp­tocur­ren­cies.

They think that eToro does it so it can make mon­ey off its users. When­ev­er I see some­one com­plain­ing, I tell myself “duh, isn’t it obvi­ous?”.

I real­ize this can be a hard pill to swal­low, but your bro­ker is not your friend. Your bro­ker can reduce com­mis­sions and make things easy for you, but in the end, they are a busi­ness. They need to man­age risk and they need some way to make mon­ey. And more often than not, they make mon­ey out of you.

So what is a wise investor to do?

If you are invest­ing, your objec­tive is most cer­tain­ly to make more mon­ey than you begin with. Pay­ing fees goes against that objec­tive, as it reduces future prof­its. There­fore, your objec­tive as a user of a bro­ker’s plat­form is to try to be smarter than your bro­ker.

For exam­ple, in the plat­form I use, there are no com­mis­sions for trad­ing stocks. As long as you are open­ing long posi­tions with no lever­age, you just pay the spread. On the oth­er hand, cryp­to spreads are high­er than I can tol­er­ate, not to men­tion that there’s no stop loss. So I stay away from cryp­tos and trade stocks to my heart’s con­tent (though there are oth­er, bet­ter ways to invest than pick­ing indi­vid­ual stocks).

If I want­ed to trade cryp­tos, I would look for anoth­er plat­form where the spreads were to my taste, but I would­n’t do it on eToro and then com­plain about it!

In the end, invest­ing is a game of max­i­miz­ing prof­its and min­i­miz­ing fees.

Have you found any clever ways to min­i­mize fees in your invest­ments?

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