Beware of the broker who tells you that he only makes money when you make money.
Our clients often complain that their stock brokers have told them they aren't charging any commission and will only get paid when the customer makes money. This is not only a lie but it is also a violation of securities laws.
Brokerage firms sometimes may appear to not be charging commissions on transactions in securities in which the broker is a market maker. Instead, they make money through mark-ups or mark-downs from the transaction price. Thus, a mark-up of 1/4 point ($0.25) on 1,000 shares equals a $250 charge.
On thinly traded securities, it is also possible that the broker is covertly increasing the price the customer pays by controlling the "spread" (the difference between the price which the broker will pay to buy the security and the price at which it will sell).
The point is that brokers seldom, if ever, work for free, and if one tells
you he is working for free, he is probably lying
to you.
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