Costs Involved

What is commission?

Commission is the amount of money that a broker will charge to cover his expenses. It will vary from broker to broker, so it's worth shopping around. It will also vary, if you're a small trader, your commission percentage will probably be higher than somebody investing £100,000 or a £1,000,000 at a time, so that should be taken into consideration as well.

Why is the bid-offer spread a cost?

The bid-offer spread is a cost because it is the way that a market maker covers his expenses. You must remember that a market maker is buying and selling shares from different people all the time. Sometimes he may buy lots of small amounts, a 100 shares here, 200 shares there. He will parcel them up together over the course of the day. The share price may fluctuate over the course of the day, so his average buying price may in a share be 101p, when the quote has been 103p. He will then try to balance his books by selling all those shares to one institutional holder. And he may get 102p for them. The difference will be 1 pence, but on 100,000 shares that a reasonable amount of money. So the spread is the way that the market maker covers his cost and his profit in loss.

What is capital gains tax?

Capital gains tax, or CGT, is a tax levied by the government on tradings in stocks and shares and other forms of assets. Every year you will have a Revenue form sent to you. And on that form you will have to list all the trades that you have conducted within the tax year, which will show profits as well as losses. Once sent to the Revenue, there will be a balanced figure. That balanced figure is subject to tax after your allowances. The allowances change from year to year. Should you require more information on capital gains tax, then go into the government in their Revenue sites.

What is stamp duty?

Stamp duty, is a government charge, which is levied on the purchase of shares and other assets, such as houses.

Do I always have to pay stamp duty?

Stamp duty is paid on all purchases of shares.

What costs are involved when buying shares?

Normal costs involved when buying shares are stamp duty, commission (brokers commission), normal admin charge, which can be between ten and fifteen pounds. Your broker will always advise you of the total charges in advance of buying your shares.

What costs are involved when selling shares?

Normal cost involved in selling shares are commission and administration charge, but your broker would always advise you in advance when selling.