Trading for Free

Q

Which brokerages will charge me the least to buy or sell stock? — R.W., Augusta, Georgia

A

Many major brokerages now offer commission-free trading. Regardless of commission fees, though, it’s best to trade relatively infrequently — buying shares of companies you’ve researched and believe in, with the aim of holding them for many years. When you buy and sell frequently, you don’t give great stocks a chance to perform for you, and any gains you rack up will face the short-term capital gains tax rate, which can be higher than the long-term rate.

If you trade infrequently, paying the absolute least per trade isn’t that critical, so assess other brokerage characteristics and focus on those that matter most to you — such as a wide range of available mutual funds, or access to research reports, banking services or brick-and-mortar locations. You can learn about many good zero-commission brokerages at Fool.com/the-ascent.

Q

A

What are ADRs? — H.D., Topeka, Kansas “ADR” stands for “American depositary receipt”; ADRs are securities representing shares of foreign companies that trade on foreign stock exchanges. The ADRs trade on American stock exchanges, making it easy for U.S. investors to invest in foreign companies.

Let’s say you wanted to invest in India’s Tata Motors, and ADRs didn’t exist: You’d need to convert your dollars into rupees and then buy shares on the Indian stock market, perhaps after opening an Indian brokerage account — if you were even able to do that. But since there’s an ADR for Tata Motors (with the ticker symbol TTM), you can simply buy shares here in the U.S.

Read up on ADRs if you’re interested, as there’s more to know, especially related to fees and taxes.