Fees, spreads, and why “free” still costs something
Education only — not a recommendation to buy, sell, or hold anything.
The core idea
Every time you trade or hold, something usually takes a cut: a fee, a spread, slippage, or a fund expense. “$0 commission” can still leave several of those intact.
If you only compare headline commissions, you are not comparing total cost.
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Cost types in plain English
| Cost | What it is | Where it shows up |
|---|---|---|
| Commission | Explicit fee per trade or per share | Broker / exchange fee schedule |
| Spread | Gap between bid and ask | You buy nearer the ask, sell nearer the bid |
| Slippage | Fill worse than the price you expected | Fast markets, large size, thin books |
| Expense ratio | Annual % fee inside many funds/ETFs | Drag on holdings even if you don’t trade |
| Withdrawal / network fees | Cost to move crypto off a venue or on-chain | CEX withdraw screens; gas on chains |
| FX / conversion | Currency conversion markup | Multi-currency accounts |
| Inactivity / wire / data fees | Account-level charges | Fine print |
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Spreads are a trading cost even when commission is zero
Example mechanic (numbers are illustrative only, not a quote):
- Bid $10.00 / Ask $10.04 → spread is $0.04
- Buy at the ask, immediately sell at the bid, and you are underwater before the market “moves”
Wider spreads are common in:
- Small-cap names
- After-hours sessions
- Illiquid crypto pairs
- Stressed markets
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Fund expenses vs trading costs
An ETF can have a low commission to trade and still charge an expense ratio to hold. Trading costs and holding costs are different layers. The prospectus / fact sheet is where expense language lives — prefer that over social summaries.
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Crypto-specific cost notes (roles, not picks)
- Trading fee tiers on a CEX (maker/taker) are only one line.
- Withdrawal fees and network (gas) fees can dominate small transfers.
- DEX swaps may show a price impact / slippage tolerance — that is part of the cost, not a UI decoration.
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How beginners get misled by “free”
- Zero commission → ignore spread and slippage.
- “Free ETF trades” → ignore expense ratio and premium/discount.
- “Earn yield” screenshots → ignore lockups, smart-contract risk, and who can pause withdrawals.
- Bundled “VIP” fee cuts → ignore that higher volume often means higher risk appetite, not a free lunch.
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A simple pre-trade cost checklist
Before any real or paper order, ask:
- What is the spread right now?
- Am I using a market order (speed) or limit (price control)?
- Is there a fund expense if this is an ETF/fund?
- If crypto: what is withdraw / gas if I move it later?
- Does the venue charge account-level fees I have not read?
Paper practice on /mock/ (when live) still benefits from noticing spread and slippage habits — fake money only.
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Related
- Learn index
- What is risk
- Next: Order types: market, limit, stop
- Glossary — spread, slippage, expense ratio, market order, limit order
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Draft for Trading CEO review → Sentry CLEAR → Forge. Education only. No broker rankings.