TRADING COSTS AND CHOOSING A
BROKER
Prof. Phillip de Jager
Agenda
• Explicit trading costs.
• Implicit trading costs.
• Choosing a broker.
Explicit trading costs
No security transfer tax as
sale
Charges summary
DESCRIPTION
FORMULA
Brokerage
Depends (example is 0.45%
and R105 minimum)
Strate
0.005787% with minimum
R7.45 and maximum R98.04
Investor protection
0.0002%
VAT on the above
15%
Securities transfer tax on
purchases only
0.25%
Implicit trading costs
• The bid/ask spread or difference is an implied cost
because:
– If you buy the share now you pay the ……… or the higher
price
– If you immediately sell the share, then you will sell at the
…….. or lower price
– Implies an immediate loss
Iron logic of costs
All else equal, a share price has to increase
by at least the total of explicit cost to buy
the share + explicit cost to sell the share +
implicit cost before you will make nil profit
on the trade. Else negative.
What do you want from a
stockbroker
•
•
•
•
•
•
•
Low cost.
Data to be used for trading.
Wide range of trading/investment options.
Credit facilities.
Easy to use interface.
Hot tips.
Etc.
• Truthfulness.
• Trustworthy.
• Segregated holdings.
RISK
Next time
• Only four lectures left.
• We will finalise the trading vs investment argument.
• We will briefly look at the JSE and other stock exchanges
in SA.