Consider Online Trading Charges When Buying Stocks on a Shoestring

When you buy stocks, the cost includes not only the position (bid price) you agreed to pay but also the accompanying charges.  For instance in online stock trading, an online stockbroker debited you commission (plus Value Added Tax) and SCCP charge on top of the value of stock you purchased.  The sum of it is the cost you see in your portfolio on your stockbroker’s online platform which is compared to market value to show the ratio/percentage of profit/loss.

Though considering fundamental, technical, and macroeconomics in trading/investing equities is equally or conversely important, studying before buying stocks or entering your position is indeed quite hefty.  Considering your risk appetite and liquidity position against the cost of trading will limit your participation in the market.  There is a possibility that you will not be able to trade/invest and enjoy the benefits the stock trading/investing might offer.  However, ignoring online trading charges IMHO is not economical particularly to a trader/investor who is on a budget like me.  Let me show you here why..

First, below is an example of online stock trading charge in a Purchase transaction.

Commission	→	.25% of gross trade value or P20 per trade whichever is higher
Value Added Tax (VAT)	→	12% of Commission
SCCP Charges	→	.01% of gross trade value

As you can see, commission is a percentage of gross trade value.  An P8,000 gross trade value (P20 / .0025 = P8,000) is the minimum amount you should trade/invest rather than the minimum board lot for instance.

Example.  Assuming you bought 100 shares (minimum board lot) of EMP (Emperador Inc.) at P7.30.  The computation of the total cost of purchase is as follows.

Gross Trade Value (100 shares x P7.30)			P	730.00
Commission				22.40
P730.00 x .25% = P1.83 or P20 whichever is higher	P	20.00
Add: VAT (P20 x 12%)		2.40
SCCP Charges (P730.00 x .01%)				0.07
Total Cost of Trade			P	752.47
Cost per Share (Total Cost divided by 100 shares)			P	7.52

Then, compare it if for instance you bought 1,000 shares.

Gross Trade Value (1,000 shares x P7.30)			P	7,300.00
Commission				22.40
P7,300.00 x .25% = P18.25 or P20 whichever is higher	P	20.00
Add: VAT (P20 x 12%)		2.40
SCCP Charges (P7,300.00 x .01%)				0.73
Total Cost of Trade			P	7,323.13
Cost per Share (Total Cost divided by 1,000 shares)			P	7.32

Cost per Share of 100 shares purchased			P	7.52
Cost per Share of 1,000 shares purchased				7.32
Difference			P	0.20

In the illustration above, there is actually a .20 price per share difference, the opportunity cost if you buy 100 shares instead of 1,000 shares at P7.30 stock price.

To further illustrate, assuming the closing price of EMP is P7.70.  How much will be the gain/loss if you sell 100 shares vs. 1,000 shares at P7.70 stock price?

Shares	Mkt Value*	Total Cost	Profit/Loss	%P/L
100	743.67	752.47	(8.80)	-1.18%
1000	7,638.33	7,323.13	315.20	4.13%
*Mkt Value includes Sale charges, e.g., Commission
(+VAT), Transaction Tax, and SCCP Charges.

Mkt value per share of 100 shares	P	7.44
Less: Cost per share of 100 shares		7.52
Profit/Loss per share of 100 shares	P	(0.09)
Mkt value per share of 1,000 shares	P	7.64
Less: Cost per share of 1,000 shares		7.32
Profit/Loss per share of 1,000 shares	P	0.32
Difference	P	0.40

There is a .40 price per share difference if you sold 100 shares vs. 1,000 shares at P7.70 stock price assuming both bought these stocks at P7.30 stock price.  Therefore, ask yourself.  What is more efficient, you buy 100 or 1,000 shares? You decide.

Btw, as you consider charges in online stock trading, you should consider as well the type of trade you plan to do (e.g., day trade, swing trade, buy and hold), and the minimum board lot and stock price of the stock you plan to buy.  Caveat :)

#StockTradingTips #TradingonaShoestring