Anyone who has been in the market for some time would have experienced and incurred some accumulation of market trading fees and commissions. What we realise is that, these can add up to quite a bit after some time, especially if the frequency of trading (buy & sell) is higher or if the value of the contract is lower.
What we do want is to optimise our investment dollars and spend as little as possible in fees on each trade carried out.
Market Fees
Some fees are imposed and is regardless of the value of contract traded. One example are markets fees, which is dependent on the market you trade in. It is neither a recommendation nor advice to avoid markets that charge and lean towards markets that do not or charge a lower fees. Investors should pick the markets based on their understanding of the market, comfort level and also available market opportunities.
The bad news is you cannot avoid market fees. The good news is market fees are usually a fixed percentage on the value of your contract regardless of the size of trade.
Brokerages trading commissions
The other unavoidable cost is brokerages trading commission. With 13 brokerages or custodians to date, the commissions charged differs depending on size of trade and holdings type. As a rule of thumb, investors normally try to keep the level of commissions to a minimum. In other words, to trade at a minimum amount as close to at least the minimum fees incurred.
For example, UOB Kay Hian trading commission is 0.28% of the value of your contract, subject to a minimum $25 fees whichever is higher. The optimum contract value for each trade is $8930. An investor who buys $5000 worth of stocks in a single contract will still incur $25 fees (which is the equivalent of 0.5%). Another investor who sells $2000 in a single contract will also incur $25 fees (which is the equivalent of 1.25%.
What can we understand from this? The lower the contract value, the higher (percentage) of trading fees occurred. Refer to the column ( < $50K) for the optimum minimum contract value for each of the brokerages.
Optimum trade size or lower threshold for minimum commissions
Do I save up to the optimum minimum contract value before I fire one bullet? Or is there a lower acceptable threshold? My personal take – do not incur beyond 0.8% in fees on your overall contract value.
| Investor A | Investor B |
| Overall lifetime trade of $100,000 | Overall lifetime trade of $100,000 |
| Trades $5000 at a time | Trades $2000 at a time |
| Incurs $500 commissions fees | Incurs $1250 commissions fees |
| 0.5% as fees | 1.25% as fees |
We can see from the above table that Investor A incurs a lower percentage of commission fees by trading a larger contract value each time even though the overall lifetime trade is the same.
Alternatives
What small-time investors could do is to “save up” for a trade. In other words, instead of trading monthly, you could opt for quarterly or even semi-annually. Otherwise, you could partake in the Regular Savings Plans (RSP) offered by
- DBS Invest-Saver
- OCBC Blue Chip Investment Plan
- POEMS Share Builders Plan
This program allows you to invest from $100 upwards monthly and at the same time keep commission fees relatively lower.
So, how much is your one bullet?
Theory of Constraints 