Brokerage fees and commissions are the most common and frequently charged expenses by your forex broker. However, with the proliferation of discount brokers, the cost of forex transactions is now dramatically minimized. In general, placing stock orders online is less costly than calling a stockbroker through the telephone to buy stocks. Asset management fees can also be charged by stock brokers. At times, this practice of paying asset management fees is a great barrier in wealth building. Although it may be a low 1.5%, it can be worth hundreds of thousands of dollars over time.
Spreads
The market maker charges a certain percentage every time there’s a stock transaction. Called a spread, it is the difference between the ask price and a bid price. Just like the asset management fees, spreads can amount to thousands of dollars in the long run.
Capital Gains Tax
The capital gains tax can be paid when the stock investment is sold. As each year passes, the capital gains tax value increases if the stock investment isn’t sold. If the stock investment is sold, you have to pay for the capital gains tax, the spread, and brokerage commissions. Therefore, it is highly recommended to change investment positions if the new investment has between 20% and 30% advantage over your present stock investment. This strategy will effectively cover all frictional expenses you have to pay when you dispose your present stock investment.
Mutual Funds’ Frictional Expense
If you own mutual funds, you will also be charged with frictional expenses like sales loads and management fees. Just like the regular stock investments, you have to ensure that your mutual funds earn higher to pay for these frictional expenses and make a decent profit from the sale.
If you’re new in stock trading, you should be able to take into consideration the frictional expenses which can significantly reduce the profits you can earn from your investment. As such, you have to exercise due care in your buy and sell stock investment decisions. If you’re curious, I am a happy stock investment trader and uses the services of my favorite broker since I started stock trading.
