Understanding brokerage charges

Brokerage has come down significantly. I remember in the 90s, when I bought my first blue-chip bank, Overseas Union Bank, which had since been subsumed under United Overseas Bank (UOB), I paid something like $100 in additional fees including brokerage, trading fees and so on. I was a rookie investor back then. I did not know the exact fees structure, but I know it was very expensive, something like 1% each way, when buy or sell. With the advent of the internet trading, the brokerage fee is now a fraction of what it used to be. Furthermore, with the possibilities of trades going across borders, to far places such as US and Europe, trading fees charged by stock exchange are also relatively small due to the global competition. Then, with the introduction of script less trading, things have become so convenient. As clients, what does it mean to all of us? All these developments have made it so cheap and so convenient now compare to twenty years ago.

Based on brokerage fee of several broking houses, it typically starts off with a flat fee of $25 up to a certain amount. Then it becomes a percentage, typically 0.275% or 0.28% up to $50k, and then a smaller percentage between $50k and $100k, and then an even smaller percentage beyond $100. (View the attached video on the percentage based on the minimum of $25 broking charge.) There may be some subtle differences between broking charges of the broking houses, but by and large, the difference is not likely to be significant given the competitive nature of the business. Actually, being a customer of a bank, I could get as low as 0.18% for all my trades. However, I used it partially as I have remisier friends, who still find it hard to make ends meet due to the slump in the brokerage rates. After all, they are in an honest business trying to carve out a living. It was unlike 20 years ago, when remisiers are highly sought-after professions, whereby we have to go and look out for them before they consider signing us up as clients. Certainly, paying a tiny fraction for brokerage to remisier friends is much better than incurring heavy losses in the penny stock clash, just like that of October 2013, or buying into ‘unwarranted headaches’ such as buying into junk bonds of offshore-related companies.

That said, still it is important to be watchful of the cost that comes along with our stock transactions. It should be treated the same way as if we are doing a business, and therefore, we have to be watchful of the costs incurred when we buy or sell or stocks.

From the video, it can be seen that if we trade at a very small contract value, then the flat broking fee of $25 would translate to a significant percentage. But as the trade amount get bigger, the flat fee of $25 becomes a smaller percentage. The same methodology can be applied if there are differences in the percentage charges for the first $50k.  Enjoy and hope you can learn something out of it!

Brennen has been investing in the stock market for 26 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

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