Fees You Should Be Aware Of May 11, 2022

Zero commission trades may not exactly mean they’re free. What are some trading fees you should be aware of?

Many financial models assume transaction fees to be a negligible expense as they affect the pricing of securities. However, we know there is no such thing as a free lunch. Trading fees (in one form or another) are prevalent and unavoidable. If one were to trade frequently, you should be aware of the hidden fees that can otherwise eat into your profits.

When it comes to trading fees, many investors only think of the commission and ignore the “hidden” fees. This is a common mistake as there are other fees to take note of, such as platform fees and settlement fees. Platform fee is normally charged once per transaction for the usage of the service provider’s platform. For example, GRAB charges a platform fee of SGD 0.30 per ride¹.

On the other hand, a settlement fee is the payment for having a service provider settle the transaction, carrying out tasks such as transferring shares and money between the parties involved². A settlement fee can be charged on a per share basis or by a percentage based on the value of the transaction. For ease of reference, we have compiled a table of the different type of fees to take note of, illustrating the different ways a broker can charge you. In addition, we have also analysed which is the most cost effective for you.

Fees You Should Be Aware Of

At a glance, using POEMS Cash Plus Privilege Account – Privilege Tier, is the cheapest when you trade above a certain number of shares like 1,000 shares for example. For investors/ traders who make trades with a lower quantity of shares, Broker X or Y in the above example will be cheaper. This is typically for counters that trade at higher prices such as Berkshire Hathaway Class A (BRK.A.US) which is trading at a whopping price of around US$480k and Amazon (AMZN.US) which is trading above USD3,000.

As each broker’s rates differ from one another, there is no one broker that fits every investor’s needs. As shown in the chart above, acquiring 1,000 shares of PLTR.US stock will incur the cheapest fee using POEMS.

Therefore, solely looking at the commission rates can be misleading and understanding the entire fee schedule will help you in making an informed decision.

When selling US stocks, there are additional fees involved such as the Securities and Exchange Commission (SEC) Fee and the Trading Activity Fee (TAF).

The SEC fee is paid to the regulating party to offset its cost for regulating the equities market³. The SEC fee is charged based on the notional value of the contract. The rate before 14 May 2022 is 0.00051% and the rate will be revised to 0.00229% from 14 May 2022⁴. Thus, a USD$1 Million sell order will incur a SEC fee of USD 22.90.

Similar to the SEC fee, TAF is charged to help the Financial Industry Regulatory Authority (FINRA) offset the cost of supervising and regulating firms⁵. TAF is charged on a per share basis at US$ 0.000130 per share, with a maximum charge of USD 6.49⁶.

On top of the upfront fees discussed when trading US counters, other ongoing fees may incur. Some of the common fees are American Depositary Receipt (ADR) fees, corporate action charges, foreign shares custody charges, withdrawal fees, statement request fees and so on.

The points discussed are from the cost standpoint. There are other factors that investors must consider when choosing a broker to invest their savings in. Some considerations are broker’s reputation, support availed during trading hours, access to personal Financial Advisor/ Trading Representatives as well as the range of investment products, insurance solutions etc. Regardless of other concerns, trading costs may be the deal breaker for some, and we hope that this article helped investors like you to better understand the costs involved and to look beyond “free commission” when choosing a broker.

You can also read up more on how some fees and charges have affected traders in this article written by The Business Times*.
*Please note that to read the full article you require a subscription to The Business Times, however as a free user you can still read the summary of the article.

Reference:

Disclaimer

These commentaries are intended for general circulation. It does not have regard to the specific investment objectives, financial situation and particular needs of any person who may receive this document. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of any person acting based on this information. Opinions expressed in these commentaries are subject to change without notice. Investments are subject to investment risks including the possible loss of the principal amount invested. The value of the units and the income from them may fall as well as rise. Past performance figures as well as any projection or forecast used in these commentaries are not necessarily indicative of future or likely performance. Phillip Securities Pte Ltd (PSPL), its directors, connected persons or employees may from time to time have an interest in the financial instruments mentioned in these commentaries. Investors may wish to seek advice from a financial adviser before investing. In the event that investors choose not to seek advice from a financial adviser, they should consider whether the investment is suitable for them.

The information contained in these commentaries has been obtained from public sources which PSPL has no reason to believe are unreliable and any analysis, forecasts, projections, expectations and opinions (collectively the “Research”) contained in these commentaries are based on such information and are expressions of belief only. PSPL has not verified this information and no representation or warranty, express or implied, is made that such information or Research is accurate, complete or verified or should be relied upon as such. Any such information or Research contained in these commentaries are subject to change, and PSPL shall not have any responsibility to maintain the information or Research made available or to supply any corrections, updates or releases in connection therewith. In no event will PSPL be liable for any special, indirect, incidental or consequential damages which may be incurred from the use of the information or Research made available, even if it has been advised of the possibility of such damages. The companies and their employees mentioned in these commentaries cannot be held liable for any errors, inaccuracies and/or omissions howsoever caused. Any opinion or advice herein is made on a general basis and is subject to change without notice. The information provided in these commentaries may contain optimistic statements regarding future events or future financial performance of countries, markets or companies. You must make your own financial assessment of the relevance, accuracy and adequacy of the information provided in these commentaries.

Views and any strategies described in these commentaries may not be suitable for all investors. Opinions expressed herein may differ from the opinions expressed by other units of PSPL or its connected persons and associates. Any reference to or discussion of investment products or commodities in these commentaries is purely for illustrative purposes only and must not be construed as a recommendation, an offer or solicitation for the subscription, purchase or sale of the investment products or commodities mentioned.

About the author

Chan Zi Quan (Dealer)

Zi Quan is a US Equity Dealer in the Global Markets Team and specializes in the US and Canadian markets. He is an avid crypto fan and is adept in macro analysis.

Back in Business: The Return of IPOs & Top Traded Counters in March 2024