There is widespread choice when it comes to investment opportunities on the market. Each investor will have their own strategy – one person might like to invest a lump sum and sit back, waiting for their investments to grow in value. Another might like to buy shares more frequently in the hope of enjoying a quick win.
It’s important not to lose sight of the costs involved with investing, particularly those trading the market on a regular basis. Over an extended period, costs can add up and have a detrimental impact on your returns.
How costs can add up if you trade regularly
Investors have varied reasons why they might want to make multiple trades rather than do everything in one go.
For example, they might spot opportunities to buy at a cheaper price. Or they see a company that slumped in value following a news announcement and they hope to trade a rebound in the stock, studying trading volumes to try and time their entry.
Let’s say you bought ten parcels of UK shares across two days - where a parcel represents a distinct lot of shares and can vary in the number.
You invest £100 each time, with each transaction incurring a £5.00 dealing charge and 0.5% stamp duty fee, which in this case is 50p.
In total, you would have invested £1,000 in shares and paid an additional £55 in dealing charges and stamp duty, which equates to 5.5% of the amount invested.
Had you invested £1,000 in one go, your charges would be £5.00 and your stamp duty would also be £5.00, or £10.00 combined.
That’s 1% of the total investment, a saving of £45 versus the ten individual trades shown in the example above.
Can I get discounted charges for frequent trading?
Some providers, like AJ Bell, offer a discounted £3.50 frequent dealing charge if you made ten or more share deals in the previous month.
While that should suit someone actively buying and selling, you still need to factor in charges when trying to set your expectations regarding potential returns.
Let’s say you make 50 trades in UK stocks each week for four weeks and qualify for the £3.50 discounted dealing charge rate. Those 200 trades would incur a total of £700 in dealing charges. You would also need to factor in stamp duty charges on top.
Read more about our Dealing charges
Extra charges to buy foreign shares
US-listed shares have been popular with investors, particularly names such as electric car maker Tesla and artificial intelligence computing specialist Nvidia. While you do not pay stamp duty on overseas-listed shares, there are foreign exchange charges to consider in addition to dealing charges.
For example, if you bought £100 worth of shares in Tesla, you would pay a £5.00 dealing charge and a 0.75% foreign exchange charge worth 75p.
In total, the charges add up to £5.75 or 5.75% of the amount invested.
On the same day, you buy another £100 worth of shares and incur a repeat of the £5.75 in charges. The next day you do the same again, buying another batch of shares at £100 a time and incurring a further £5.75 in charges. At this point, you have invested £300 and spent an additional £17.25 in charges.
A week later, your £300 investment increases in value to £350 thanks to the Tesla share price going up, and you decide to sell the stock.
For the sale transaction, you would pay a £5.00 dealing fee and a 0.75% foreign exchange charge (£2.63) which together add up to £7.63.
In total, you would have made a £50 profit on your investment but that falls to £25.12 after you deduct the £24.88 spent on dealing and foreign exchange charges (£17.25 when buying, £7.63 when selling).
Our Dealing account is low-cost and unlimited. Invest as much as you want, whenever you want.
We're here to help you understand what you’re paying for and how to compare different platforms.
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