Tag Archives: brokerage

All about brokerage charges

DBS, Jardine C&C, Z-FINANCIAL EDUCATION, Z-INVESTMENTS, Z-Personal Finance, , , ,

Let’s face it. Over the years, technology has taken toll on many middle functions. Stock broking is no exception. It is no longer the, once-upon-a-time lucrative high-profile business. Commission rates offered by brokerage houses are so competitive that there are hardly differences separating one from another. All the commission charges have two features in common:

(1) Contract value range ie. 0 and $50,000 (inclusive), above $50,000 to $100,000 (inclusive) and above $100,000.

(2) A minimum brokerage charge, of which almost all the brokerage houses charged at $25.

Generally, the only difference that separates one from another is the brokerage fee rate (in percentage term) for each of the mentioned contract value range. (See youtube video by clicking the link below.)

https://youtu.be/zpa0eWx5o-o

So, once we know the brokerage rate for each contract value range, we can calculate the absolute amount in dollar terms how much one would have to pay for all the transaction fees including brokerage fees when we buy or sell SGX stocks on-line. Certainly, under this circumstance, a video would be extremely useful to demonstrate how it can be done.   

Excel spreadsheet software to calculate brokerage charges

The difference may be not be significant due to their infinitesimally small percentage compare to the trading (or contract) value. As such, a change of one or two bits upwards or downwards could have offset this difference. However, it is still important as an end-customer to know the figures are derived. This would certainly go a long way to help us optimise the brokerage charge. This is particularly true for those who trade very often. Of particular significance are at the transition point from minimum brokerage threshold as well as at the cross-over points at $50,000 and $100,000. They are marked in circles shown in the diagram.

Brokerage fees at different contract value range
  • Transition Point A. The transition charge from the minimum brokerage of $25. Generally, brokerage houses have a minimum charge of $25. The only difference is the transition point from $25 to either 0.275% or 0.28% for most brokerage houses. Consequently, there is a difference in the contract value amount. The higher the transition value, the better it is for the client. The difference, however, is infinitesimally small of less than $0.50 maximum. So, this factor alone is unlikely able to move traders from one broking house to another.
  • Crossover point at B & C. The brokerage charge dips quite significantly at $50,000 and $100,000 contract value mark. What do those numbers mean for clients? To help reduce the brokerage (though insignificant compare to the absolute contract value), trades may be carried out at slightly higher value than $50,000 and $100,000 respectively. Let’s look at the DBS and Jardine C&C as examples. They are trading at about $25 and $36 per share currently. If I were to buy or sell 2000 DBS shares, the contract value would be about $50,000. For $50,000 or less, the brokerage charge is 0.28%. This is calculated to be $140. However, if I were to trade at $25.01 per share, the brokerage rate would have dropped to 0.22% or $110.04. This means that I would have saved $30 in brokerage, but of course, this saving is offset by the higher trading price, which translates to $20 higher for 2,000 shares in order to reach a contract value of $50,000. So, there is actually a small saving of slightly more than $10 including GST. While coming from a viewpoint that if one is able to afford $50,000 a pop to buy or sell 2,000 DBS shares, the $10 extra in brokerage may not mean much, but still it is a good knowledge to know about. The same story goes at the crossover point at $100,000. Assuming if I am waiting to buy 3000 shares of Jardine C&C, it does make sense to buy at $33.34 than at $33.33. For 3000 shares at $33.33 would mean my contract value is $99,999 and the brokerage works out to be $220. However, trading 3,000 shares at $33.34 would mean that the brokerage is $180.04. After accounting for the higher trading value and GST, the savings again works out to be slightly more than $10. This, again, is quite insignificant compare with $100,000 in contract value. (Based on my self-programmed excel software, the difference comes to a little more than $12 for both cases.) This ‘trick’, however, is useful only for high-priced stocks, such as DBS and Jardine C&C. For lower-trading price stocks, they are not useful because it takes a sizeable quantity to reach a contract value of $50,000 or $100,000. Just allowing 1-2 cents increase would magnify the trading value so significantly that a lower brokerage rate would not able to offset the difference in the trading value.

Overall, it is a good mathematical knowledge to know although I do not think the brokerage fee alone will move customers from one broking house to another. Furthermore, they can only happen for ‘special-case’ situations like trading in DBS or Jardine C&C shares. Most of the time, they do not apply. Generally, clients only move due to a confluence of factors.

All that said, it is important that our actions to buy or sell stocks should not be based on penny-pinching decisions of one cent. After all, brokers and remeisiers do work hard in their professional capacity to service clients. Certainly, they deserved to be paid in some ways. What we should be more concerned is whether the stock that we want to buy or sell can move in our favour. That should be the more important factor to look at.                 

Disclaimer – The above pointers are based on the writer’s personal experience. They do not serve as an advice or recommendation for readers to buy into or sell out of the mentioned stocks. Everyone should do their homework before they buy or sell any securities. All investments carry risks.

Brennen has been investing in the stock market for 30 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is the instructor for two online courses on InvestingNote – Value Investing: The Essential Guide and Value Investing: The Ultimate Guide. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

Reading too much into news & Wall Street movement can derail our financial plan

OCBC, Z-FINANCIAL EDUCATION, Z-INVESTMENTS, Z-Personal Finance, Z-STOCK INDICES, , , , ,

Very often we try to check the Wall Street movement and the futures to have an idea of what is likely to happen in the local stock market at the start of the trading day. After all, the Wall Street houses a few largest exchanges in the world. Most of us see this totally out-of-phase time difference as an important leading indicator to position our trades. Big falls are often discussed extensively with a lot of anxiety and anticipation of how low the STI can retreat in response to those falls. Some of us may even be tempted to ‘sell into strength’ at the start of the trading session.

Actually, there were times the STI did not fall in tandem with the Dow Jones or NASDAQ. Just over the last weekend, many were anticipating that the STI would be in for a big fall when the Dow Jones sank 572.46 points from the close of 24,505.22 on their Thursday to 23,932.76 at close on their Friday. But, the STI actually moved up by 7.48 points from the close of 3,442.5 on Friday, 6 April 2018 to 3,449.8.98 at close on Monday, 9 April 2018.

Then on Tuesday, 10 April when President Donald Trump brought out the possibility of aerial strike in Syria, the Dow Jones sank 218.55 points, but the following day, STI advanced 13.38 points. Despite those devastating news, the STI actually advanced close to 100 points (or close to 3%) for the week. For the same period, the Dow Jones also advanced 427.38 points from 23,932.76 to 24,360.14 and the NASDAQ advanced 191.54 points from 6,915.1099 to 7,106.6499. Perhaps, there may be some kind of co-relationship between Wall Street and STI over time, but it does not mean that the STI move in exact lock-step with the Wall Street movement.

Perhaps, those who try to time the sell are not really selling off their stocks for good. It is likely that they wanted to take advantage of the steep fall in the Wall Street to sell and hope to buy them all back when the share prices tank significantly. This could be a wise thing to do if the Wall Street and the STI have perfect correlation on day-to-day basis, but we often find ourselves caught in the situation if our timing is incorrect.

Let us look at transaction cost to assess if the risk is worth taking. Take OCBC for example. Assuming if we were to sell off 1000 shares at the opening bell at $12.77 on Monday, 9 April, and let’s say we were lucky enough to buy back the same stock at the lowest share price of the day at $12.93 on Friday, 13 April, it would still be a loss of about $248 dollars. Even using a priority banking nominee account on Standard Chartered trading platform which is supposedly the lowest brokerage, it still set us back by $220.50. Apart from the trading loss, there is also an end-of-FY dividend distribution of $190 that sellers are likely to miss out given that the ex-dividend date is around the corner. Without considering the loss of dividend, we have to wait till the stock price drop to $12.65 and $12.71 respectively (or a drop of 12 cents and 9 cents respectively) to buy back in order to just break even. With the dividend loss thrown in, the purchase price would have to go lower by a further 19 cents before we can break even. Given that that ex-dividend is drawing near, it is unlikely that the share price retreats significantly for us to cover the transaction cost, trading losses and the loss of dividend. So, the dividend is likely be lost just because of the little folly unless something significantly bad happens from now till the ex-dividend date. Perhaps if investors lost their patience, they may even go ahead to buy back the shares at a higher price. So instead of benefiting in stock investments by simply holding them, we may lose out in terms of the brokerage and all the additional costs in selling and buying them back. Of course, one may argue that the stock price is likely to drop when it goes ex-dividend, but it is still possible that the drop is less than the dividend amount or even creeps up after the ex-dividend. So why leave our fate to chance?

With so many news from many major economies happening every day, it would certainly ruin our financial plans in the long run if we keep reacting to the stock market movements. Sometimes just simply doing nothing is the best strategy of all.

Afternote – Just hours ago, US together with its allies, France and UK, attacked Syria over the alleged use of chemical weapons. Care to make a guess of the STI movement for this coming Monday?

Disclaimer – The above arguments are the personal opinions of the writer. It is not a recommendation to buy or sell the mentioned securities, the indices or any ETFs or unit trusts related to the mentioned indices. 

Brennen has been investing in the stock market for 28 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is the instructor for two online courses on InvestingNote – Value Investing: The Essential Guide and Value Investing: The Ultimate Guide. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.