The STI rose 6.1% on Monday, 20 August, to end at 3322.38. This was significant one-day jump not seen since October 1998.
It is tempting for investors to cash in and take profit. When deciding to sell your stock, consider the costs of transaction besides the share price. Each time you trade in stock, the transaction costs include:
(on-line trade with a particular brokerage house)
1. Brokerage (tiered with minimum sum of $25)
2. Clearing Fee (0.04%)
3. SGX Trading fee (0.0075%)
4. Miscellaneous Fee
5. GST amount (currently at 7%)
All fees are variable depending on the stocks you are trading in and the price of each stock. It will be wise to take note of the total cost of transaction including GST for each purchase of stock. GST is payable by you and if you are an individual treat this as cost too. When you sell your stock, the same transaction costs apply.
Typically for small-time investors, all fees including GST can come up to $28 – $30 per on-line trade through a brokerage house on the stock exchange.
Say you bought 1000 of SMRT at $1.73 and the buy-trade costs of transaction was $28. The price quoted as at yesterday for SMRT was $1.79. If you were to sell at this price, the sell-trade has costs of transaction of about $28. Would you make a profit?
Cost of stock – SMRT $1,730
Costs of buy-transaction 28
Sale of stock – SMRT $1,790
Less Costs of sell-transaction 28
The profit to be made from this buy and sell transaction is mere $4 and NOT $60 [1000 x ($1.79 – $1.73)]. The lesson from this is that we have to consider transaction costs for both buy and sell trades before making a decision to cash in and exit from the stock market.
Written on 8/21/2007 10:13 AM
Copyright © 2007, the author known as LKT in Singapore.
The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.