Five Percent Rule

Also called the “FINRA 5% markup policy,” the five percent rule requires brokers to be fair and ethical when charging for over-the-counter trades. And in this case, a “fair and ethical” commission charge is seen as one that is no more than 5% on standard trades.

We should note here that, much like the Pirate’s Code in everyone’s favorite Johnny Depp movies, the five percent rule is really more of a guideline than an actual rule. Why? Because it does not apply to every trade ever… but it does apply to a lot of ‘em. Specifically, it applies to agency or broker transactions, principal transactions, proceeds transactions, and riskless or simultaneous transactions. Even within those categories, however, there are exceptions. If we know that our broker has a minimum trade fee of $20, then we’re gonna end up paying $20, even if that exceeds 5% of the total trade amount.

Arrr, mateys...sounds like it’s a good time to make sure we’re not being swashbuckled into paying too much for our own broker fees.