Photo by PSD

Photo by PSD

There are mainly 2 ways that your stock broker earns money from you and it is important you are aware of it.

Commissions

When you buy or sell any stocks, the broker charges you a commission for the service of facilitating the transaction. Commission generally cost about S$25 per transaction (a buy or a sell) for Singapore brokers. A round trip of both buy and sell will consitute 2 x S$25 = S$50. This will affect your trading as your winning trade results in lesser profits and your losing trade results in larger losses.

For example, if you bought a contract worth S$1,000, the percentage of your cost is 2.5% and you pay S$1,025. Before you even see your profit, you are down 2.5%. The contract if goes up to S$1,100, you profit S$75 instead of S$100. If the contract goes to S$900, your loss becomes S$125 instead of S$100. Another point to note is that you should not invest with an amount that is too small such that the commission is quite significant. This is especially so if you are making frequent trades, these costs will add up. If your expected gain is around 5% each time you trade, a 2.5% commission cost will wipe out half of your earnings. Read more…