When you buy a share in your chosen company there are a few Share dealing costs that you would need to be aware of…
Namely the 3 dealing costs below
- Broker Commission
- Stamp Duty
- Spread
I will attempt to explain them briefly below…
Broker Commission
As I explained in my earlier post – Picking a Stockbroker you will be charged a commission any time you buy or sell any even if you only buy 1 share!
It is usually around the £10 per trade mark and will be less if you are a frequent trader.
Remember that you will have to pay this amount again when you sell!
Stamp Duty
The amount of Stamp duty you pay is worked out at a flat rate of 0.5% (rounded up or down to the nearest penny) based on what you pay for the shares.
So if you buy shares for £1,000 you’ll pay £5 of Stamp Duty
(If you are buying more than 10,000 pounds worth the Panel of Takeovers and Mergers currently levy a £1 charge in addition to stamp duty)
NOTE: Since 28 April 2014, you don’t have to pay stamp duty on “recognised growth markets” So that means that investing in any company on the Alternative investment Market (AIM) is free of Stamp Duty
To encourage investment in “Growth Markets” like AIM you pay a BIG FAT ZERO for stamp duty way hey!
Spread
Another cost that some people forget about is the Spread. This is basically the difference between the buy price and the sell price of your shares. So if you bought Cenkos for example you would be ‘charged’ 4.3% because of the difference in the buy and sell price, have a look at the snapshot from ADVFN below…
So you would buy at the Offer price of 185p and if you wanted to change your mind and sell them straight away you would be ‘bid’ 177p for them so straight away would have lost or been charged 8p for the privilege!
So in summary…
Make sure that you buy with all these share dealing costs in mind you can work out what price you will need the share price to go to in order to break even (get you money back)
For Example lets say we bought 1000 shares in Cenkos so we would have to pay the following
1000 Shares x 185p = £1850
Commission £10 to buy
Stamp Duty £1850 x 0.5% = £9.25
and to work out what we can sell at to get full investment back we need to include the Commission that will be charged when we sell
Commission to sell £10
So the Total comes to…
1850 +10 + 9.25 + 10 = £1879.25
So each share has really cost us £1.88 ! And the current sell price is £1.77 !
In other words this means that the bid price (the price we sell at) needs to rise to 188p before we come into profit! This means that we will be showing a loss in our portfolios straight away!
I hope you understand what I mean here
Do you calculate your costs in the same way?
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