THIS WEEK’S FOCUS

The Hidden Costs of Investing: What Most Brokers Don’t Want You to Know

You’re playing poker with a marked deck.

The game is rigged, and you’re not the dealer.

Ever placed a trade, only to see the price shift against you? Or noticed your execution price is never quite what you expected? That’s because investing isn’t just about picking stocks—it’s about how you trade.

If you want to keep more of your returns, you need to understand the hidden costs that brokers and market makers don’t want you to notice.

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YOU EXPECTED ONE PRICE, BUT PAID ANOTHER

1. Slippage: The Trade Tax You Never See

If you’ve ever set a price and still paid more, congratulations—you’ve been slipped.

Slippage is the difference between the expected price of a trade and the actual price at execution. It happens when there’s a gap between the bid and ask price, or when a big order moves the market.

And here’s the kicker: in volatile markets, slippage can wipe out any advantage from smart trade timing.

Example: Let’s say you place a market order to buy 1,000 shares of a stock at $50.00. By the time the order executes, the stock is trading at $50.10. That 10-cent difference doesn’t seem like much—until you multiply it over thousands of trades.

How can you avoid this? Use limit orders instead of market orders, trade when liquidity is highest, and leverage automation to execute trades at optimal times.

YOU ARE PAYING IN WAYS YOU DON’T SEE

2. Payment for Order Flow (PFOF): Your Broker’s Dirty Secret

Ever wonder how Robinhood and other brokers make money while offering commission-free trading? The answer: they sell your orders to high-frequency trading (HFT) firms through a system called Payment for Order Flow (PFOF).

Here’s what happens behind the scenes:

1. You place a buy order for a stock.

2. Your broker sells that order to an HFT firm instead of routing it directly to the exchange.

3. The HFT firm gets a fraction-of-a-second look at your order before executing it—giving them an opportunity to profit off the spread.

The result? Your execution price is often slightly worse than if your order had gone directly to the exchange. These fractions of a cent add up over thousands of trades, quietly eating into your returns.

Instead, try to use brokers that prioritize direct routing over PFOF (Interactive Brokers is a strong alternative). More importantly, trade smarter: automation and strategy-driven execution help minimize market impact.

BIG ORDERS CAN MOVE MARKETS — AGAINST YOU

3. Market Impact: When Your Own Trades Work Against You

If you’re trading a large position (even in ETFs), your own order can push the price against you before your trade is fully executed. This is called market impact cost, and it’s a real problem for investors moving significant capital.

Suppose you’re buying $500K worth of a thinly traded stock. Your first few shares might execute at the current price, but as the market absorbs your demand, prices tick upward before the full order fills.

Institutional investors solve this problem using algorithmic execution strategies—breaking large orders into smaller ones to minimize market impact.

When trading large amounts, use execution algorithms designed to split orders over time. For everyday investors, automated, rules-based investing helps ensure that your trades aren’t being front-run by your own activity.

YOUR ETF ISN’T ALWAYS WORTH WHAT YOU THINK

4. ETF Premiums & Discounts: The Hidden Cost of Liquidity

ETFs don’t always trade at their Net Asset Value (NAV). In volatile markets, ETFs can trade at a premium or discount to the value of the assets they hold. This means you could be overpaying (or underpricing) your own investments.

For example, if an ETF’s NAV is $100, but it’s trading at $102, you’re paying a 2% premium. If you buy at that price and it reverts, you’ve lost 2% without any market movement.

💡 How to Avoid It:

• Stick to highly liquid ETFs with tight bid-ask spreads.

• Use limit orders to avoid overpaying.

• Avoid trading during extreme market volatility when ETF pricing can get distorted.