Did you know that fees are the hidden killer of many investment portfolios? Many people will trade and not know how much of their profits are eaten up by fees.
In order to build your wealth, you will want to be able to understand the various fees associated with your investment trades.
Here’s a look at how investing fees can eat into your trading. By addressing each of these issues below, you can go a long way to controlling your costs when it comes to your investing.
Overtrading can affect you in a number of ways. First, you can end up spending lots of money when it comes to transaction fees. Remember, you will have to pay a broker fee whether your trade is profitable or not.
Now, there are some who use a commission free broker. However, nothing is free in this world. Commission free brokers tend to give you inferior spreads on your buying and selling of each asset. When you trade a lot, you are experiencing “slippage” with every trade.
There are some brokers that offer you excellent broker fees. However, there are other brokers who charge more for every transaction. Therefore, you will want to compare your broker’s fees with that of the competition.
If you use complex trading strategies, you can end up overtrading and losing money with every trade. Complex trades can include advanced options trading such as iron condors and butterfly spreads. Be sure to factor in the traction fees in all of your trading strategies before placing the order.
If you trade futures, you will be paying some of the highest transactions. Therefore, you will want to be careful with how many futures you will make. Be sure to check your monthly statement to see how much you pay in fees.
Finally, you will want to be cautious when it comes to forex trading. As you may know, forex trading does not have any commission. However, you may by accepting the spread that comes with every forex trade. You will want to make sure that you base your forex trading system on the most liquid spreads such as the USD/EUR.
There are a number of different types of fees that are associated with investment trading. Here is a look at some of the most common fees that you will encounter.
Broker commissions are associated with stock, options, and futures trading. These commissions can take a sizable chunk out of your portfolio if you are not careful about your trading habits. When it comes to stock trades, you will pay a commission when you enter and you exit a trade.
Options are a little different. If you happen to open a trade, you will pay a commission. However, if you sell an option and that option expires worthless, then you will not have to pay a fee.
If you trade options, then you are probably familiar with exercise and assignment. When you exercise an options contract, you will have to pay an exercise fee. Also, when you have stock assigned to you, then you will have to pay an assignment fee.
Expense fees are associated with mutual funds and ETs. These expense fees are calculated on an annual basis. Some of these expense fees can be quite low. For instance, the expense fee on the S&P 500 ETF (SPY) is only 0.09% per year. That means for every $1,000 you put into the SPY ETF, you only pay 90 cents per year. However, some expenses can go as high as 4% per year. That means that the fund or the ETF will have to return at least 4% before you break even.
If you have your money in a hedge fund, then you will pay a management fee. Typically, a management fee is about 2% plus 20% of your annual profit. For instance, let’s say you have $1,000,000 in a hedge fund. The hedge fund returns 20% that year. Before management fees, you will have $1,200,000. Now, the hedge fund takes 2% of that total of $24,000 plus 20% of the profit or $40,000. In total, the hedge fund takes a $64,000 fee leaving you with $113,600.
Yes, there are some ways that you can build your wealth without giving a good chunk of your profit to brokers. Here are some strategies that can help you reduce fees associated with investing.
If you want to invest with less fees, then you should consider an all-in-one digital bank such as Unifimoney.
With Unifimoney, you have access to a top trading platform that offers you fast executions and some of the most competitive commissions fees available.
We are now slowly rolling out our beta program. Be one of the first to get access by signing up today.
The above does NOT constitute an offer, solicitation of an offer, nor advice to buy or sell specific securities. The opinions listed above are not the opinions of Unifimoney Inc. or Unifimoney RIA, Inc. but represent the opinions of independent contributors. These contributors may or may not hold positions in the stocks discussed. Investors should always independently research any stocks listed and form their own opinions, while recognizing that any investments made may lose value, are not bank guaranteed and are not FDIC insured.