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- Frequent trading can significantly increase your investment costs, impacting overall returns
- AJ Bell offers a discounted £3.50 dealing charge for frequent traders, but costs still add up
- Foreign shares involve additional foreign exchange charges, further increasing costs
- Frequent trading is different from regular investing: regular investing involves consistent, long-term contributions to a diversified portfolio while frequent trading focuses on short-term market movements, requiring more time, higher costs, and increased risk
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.
Example:
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 were active in the previous month and made 10 trades to qualify for the £3.50 discounted dealing charge in the following month. You then make 50 trades in UK stocks each week for four weeks at the £3.50 discounted dealing charge. Those 200 trades would incur a total of £700 in dealing charges. You would also need to factor in stamp duty charges on top.
Extra charges to buy foreign shares
US-listed shares have been popular with investors, particularly names such as drinks group Coca-Cola 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.
Example:
If you bought £100 worth of shares in Coca-Cola, 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 Coca-Cola share price going up, and you decide to sell the stock.
For the sale transaction, you 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).
Learn more about international dealing
Frequent trading vs regular investing
Frequent trading and regular investing are two different approaches to managing your investments, each with its own set of characteristics and potential benefits.
Frequent trading
Frequent trading involves buying and selling investments more often, sometimes on a daily or weekly basis. This approach is typically more hands-on and can be driven by short-term market movements. Key points include:
- Market timing: Frequent traders often try to capitalise on short-term price fluctuations, which requires a good understanding of market trends and timing.
- Higher costs: More frequent transactions can lead to higher trading fees and potential tax implications.
- Increased risk: Short-term trading can be riskier due to market volatility and the potential for making decisions based on emotions rather than long-term strategy.
- Time-intensive: Frequent trading requires more time and attention to monitor the markets and make timely decisions.
Regular investing
Regular investing involves consistently putting money into your investment portfolio over a long period. This approach is often associated with a long-term mindset and can benefit from the principles of compounding and pound-cost averaging. Here are some key points:
- Consistency: Regular contributions, such as monthly investments, can help smooth out market volatility over time.
- Compounding: By reinvesting dividends and capital gains, your investments may grow more significantly over the long term.
- Discipline: Sticking to a regular investment schedule can help avoid the pitfalls of emotional decision-making.
- Diversification: Regular investing allows you to build a diversified portfolio gradually, spreading risk across different asset classes.
No charges for regular investing
Our regular investing service lets you put as little as £25 into an investment of your choice every month without paying any dealing charges.
One-off investment: Starting from £1.50 dealing charge
Using our regular investing service: £0 dealing charge
Account and other charges, for example fund fees, still apply.
Why invest regularly?
Start investing from just £25 a month
Invest automatically at the same time every month
Focus on long-term goals instead of 'timing' the market
Cancel or change your regular investment any time
No charges for regular investing
Our regular investing service lets you put as little as £25 into an investment of your choice every month without paying any dealing charges.
One-off investment: Starting from £1.50 dealing charge
Using our regular investing service: £0 dealing charge
Account and other charges, for example fund fees, still apply.
Why invest regularly?
Start investing from just £25 a month
Invest automatically at the same time every month
Focus on long-term goals instead of 'timing' the market
Cancel or change your regular investment any time
Get your money working for you
Our charges and rates
The price you see is the price you pay. Our investment fees are easy to understand, as well as easy on the pocket.
Learn about tax
Everything you need to know about investment taxes, from capital gains tax (CGT) to ISA and pension tax.
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Important information: The value of your investments can go down as well as up and you may get back less than you originally invested. We don't offer advice, so it's important you understand the risks; if you're unsure, please consult a suitably qualified financial adviser. Tax treatment depends on your individual circumstances and rules may change.