All about brokerage charges
- Original Post from BPWLC BLOG

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 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.


The post All about brokerage charges appeared first on BPWLC BLOG.

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11 likes
4 comments
Teo

Thanks for sharing. Very clearly explained.

BrennenPak

Reply to @Teo : Thanks.

Spinning_Top

Thanks for sharing the detailed info.. I still find the brokerage fee in sg still quite high and when 9% GST kick in, it will impact us the retail investors more :(

BrennenPak

Reply to @Spinning_Top : True. Problem is after a while, people forgot all about it.

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