Stock share premiums

[pavelcherepan]

Couldn't find economics sub forum so I'll put it here instead. So, if you want to buy or sell a share on a share market you would normally have to pay a premium to a broker who would make the sale on your behalf. Is there any general rule as to how long it takes for the combined cost of premiums to exceed the price of the share itself? I guess, it's a bit vague since the price of the share is not constant, but so are the premiums...

Not considering derivatives like options and such for the sake of this question.

[Sensei]

Selling or buying shares is the most expensive when investor has to call broker by phone. It can cost even 1-3%, IIRC.

 

It's the cheapest when selling or buying is done through Internet using special website (investor can log in from anywhere) or special application (investor has to bother installing plugin for browser, only some are supported,  3rd option is completely separate trading app).

 

Broker cost is 0.2%-0.35% here. 0.2% is day-trading cost (buy and sell the same day).

There is small threshold price ("0.35% but not less than 2", the last time I checked). Beware! It can get tricky if single transaction will be split to hundred or thousands of transactions! Some scum brokers not once used it to steal money from individual investors (bots are putting small amounts 1 to couple shares, hundred of them, in queue, and somebody who wants to sell/buy but has such "scum broker" won't be able to do transaction, because everything will be wiped out by broker costs).

 

Price depends on broker/stock market (broker pays stock market little percent of what investor paid them).

 

Imagine shares are for 100, and you want to buy 1000. It's 100,000.0. Total cost is 100,000.0 * 1.0035 = 100,350.0 (for 0.35%)

or 100,000.0 * 1.002 = 100,200.0 (for 0.2%)

If you will buy shares at morning, and it will grow up by 1%, and sell the same day:

100,000.0 * 1.002 = 100,200.0 (morning total cost)

100 * 1.01 = 101 per share

101 * 1000 = 101,000.0 / 1.002 = 100,798.4 (evening total received back)

100,798.4 - 100,200.0 = 598.4 total earned during day of day-trading.

 

Edited December 21, 2017 by Sensei

[studiot]

5 hours ago, pavelcherepan said:

Couldn't find economics sub forum so I'll put it here instead. So, if you want to buy or sell a share on a share market you would normally have to pay a premium to a broker who would make the sale on your behalf. Is there any general rule as to how long it takes for the combined cost of premiums to exceed the price of the share itself? I guess, it's a bit vague since the price of the share is not constant, but so are the premiums...

Not considering derivatives like options and such for the sake of this question.

I'm glad you noted buy or sell, as the second cost is often forgotten.

In the UK there is also a tax to add in.

Some brokers offer fixed transaction costs, regardless of number of shares bought/sold.

I have a spreadsheet I prepared which adds in all the costs and comes up with a target reselling price tabled at various levels of profit (absolute %).

The time over which the share price reaches this (hopefully) can be  a few hours to a few years so decisions need to be taken buy the transactor as to what is acceptable.

The spreadsheet provides the necessary information to do this.

[swansont]

6 hours ago, pavelcherepan said:

Couldn't find economics sub forum so I'll put it here instead. So, if you want to buy or sell a share on a share market you would normally have to pay a premium to a broker who would make the sale on your behalf. Is there any general rule as to how long it takes for the combined cost of premiums to exceed the price of the share itself? I guess, it's a bit vague since the price of the share is not constant, but so are the premiums...

Not considering derivatives like options and such for the sake of this question.

If the share price is low, one would generally purchase more shares. The more relevant comparison is the cost of the commission with the cost of all of the shares purchased.

And I don't understand the question. How long it takes for the cost of the premiums to exceed the share price? The share price is supposed to appreciate in value.

[Sensei]

15 hours ago, swansont said:

And I don't understand the question.

Apparently you're not stock market investor (especially not day-trader)...

15 hours ago, swansont said:

And I don't understand the question. How long it takes for the cost of the premiums to exceed the share price? The share price is supposed to appreciate in value.

He was asking how much shares price has to grow up to have return zero from investment, including broker costs.. (after that he can set up stop-loss without any risk of losing money)

f.e. if you have day-trading costs 0.2%, 1000 shares, with morning initial price 100.0 per share:

100.0 * 1000 * 1.002 = 100,200.0

You will be even, if it will grow up from initial 100.0 to 100.401 (by 0.401%).

100.401 * 1000 / 1.002 = 100200.599

100200.599 - 100,200.0 = ~ 0.6

Edited December 22, 2017 by Sensei

[swansont]

6 hours ago, Sensei said:

Apparently you're not stock market investor (especially not day-trader)...

I am invested in the market.

6 hours ago, Sensei said:

He was asking how much shares price has to grow up to have return zero from investment, including broker costs.. (after that he can set up stop-loss without any risk of losing money)

But wasn't what was asked. The question was "how long it takes for the combined cost of premiums to exceed the price of the share itself?" which is basically the opposite of that. So it seems you didn't understand the question, either, since you answered a different one.

[Sensei]

17 minutes ago, swansont said:

But wasn't what was asked. The question was "how long it takes for the combined cost of premiums to exceed the price of the share itself?" which is basically the opposite of that. So it seems you didn't understand the question, either, since you answered a different one.

I would not say it's literally opposite..

I just think pavel misspelled what he wanted to know in the first place..

I interpreted it as "how much price of share has to grow, that combined costs of buy and sell, paid to broker, sacrifice the whole transaction"..

Every broker takes different percent..  and cost depends on whether investor uses Internet web app, custom made app, or call by phone..

 

Your interpretation of what he wanted to know makes no sense:

If it's day-trading with 0.2%.. then there is needed 100% / 0.2% = 500 transactions, either buy/sell.

If it's not day-trading with 0.35% per transaction..there is needed 100% / 0.35% = 286 transactions..

What for somebody would like to know it.. ?

 

The more important is after what grow of price of share, investor is even... and can set up stop-loss..

everything above is income.. (-tax in some cases, but that's after sell).

 

[swansont]

4 minutes ago, Sensei said:

 Your interpretation of what he wanted to know makes no sense:

Which was my point. The question, as it was phrased, makes no sense.

[Sensei]

1 hour ago, swansont said:

Which was my point. The question, as it was phrased, makes no sense.

While talking with non-native English speaker there is need of reinterpretation (if somebody is knowledgeable in some area) to not have to constantly asking "WTF are you talking about"..

 

It's kinda funny that non-English-native-speaker will communicate with another non-English-native-speaker (especially both Europeans) better using their own "version of English", than with native English-speaker (UK/US)..

 

Edited December 22, 2017 by Sensei

[Rob McEachern]

On 12/21/2017 at 12:45 AM, pavelcherepan said:

Is there any general rule as to how long it takes for the combined cost of premiums to exceed the price of the share itself?

No. If the stock loses value, the sell price may never exceed the buy price.

On the other hand, the broker fees depend upon both which broker you use (full-service or discount) and the value of the order. Large orders through a discount broker may involve combined fees (buy+sell) totaling only a small fraction of 1% of the total transaction value. Consequently, in high-volume, high-volatility day-trading, such small fees can often be recovered in a fraction of a second, by exploiting the very small trade-by-trade fluctuations in the market price. Exploiting this fact, is what high-speed, computerized trading is all about.