One of the more technical skill sets that are used when buying and selling stocks is making sure to calculate brokerage commissions into the equation for the cost/basis or cost per share. We cannot emphasize this enough in this article as to why that is so important.
Most investors and even professional day traders can get caught up in distractions and forget about the cost/basis of their shares owned before selling them. Let us start by explaining why you want to pay close attention to the cost/basis price of your shares if you are getting ready to sell.
Every broker has different brokerage fees associated with their company and to stay on course with the main point of this article, we won’t get into broker reviews here on fees.
What is cost/basis?
Cost/basis is the investor’s cost per share after the broker fee has been added to the BUY transaction of the investors order. Anotherwards for example, if you bought shares of XYZ at $13.00 and you purchased 15 shares of company XYZ, the total cost would be $13.00 X 15 shares, right?
WRONG…. you need to add in the brokerage costs of purchasing the shares on top of the order. So $13.00/share X 15 shares = $195.00. Now, ADD in the broker fee of… let’s just pretend $6.95. This brings your total cost of the 15 shares to $195.00 + $6.95 fee = $201.95.
After you have made your purchase of shares you NEED to know the cost/basis or cost/share price so you can assure yourself that when you SELL to take your profits, that you are making sure to sell above your cost/basis or cost/share price. Every broker will have a cost/basis & cost/share price and it will look something similar to the picture below. The look may vary a bit depending on the brokers website but it will still say cost/basis.
Don’t throw away money to brokerage costs!
Even though brokerage commissions don’t seem like something that can eat into your wealth and set you back when it comes to making profits on your investments, it actually can do just that. You see each time you make a purchase on a paper asset of stock there is a broker fee associated with that purchase. Just remember the more times that you make buy and sell orders throughout a calendar year, the more your cost basis will go up and it will take longer for your investment to go into a profit.
The reason your investment will take longer to actually make a profit is because the cost basis is included into your buy order or sell order. So regardless if you are looking to hold onto an asset long term or looking to sell an asset on the short term side of speculating or day trading, LOOK at the COST BASIS number before selling and the price the stock is listed for at that point in time in which you sell.
It is recommended so that you can reduce the amount of money that you will LOSE to brokerage fees and keep the time that it takes to break even and start profiting on your investments to a minimum; that you ONLY buy assets or stocks maybe once or twice a year. This will speed up the time that it takes to start PROFITING and seeing returns. In regards to selling a stock… SELL all you want just make sure you take into account the actual price you need to sell at is the cost basis, not the market value price of your stock.
For a more in-depth explanation of commission fees and how they work please watch the video below.
If you have any other information that you would want to share in regards to handling brokerage fees please feel free to leave your comments in the comments section below. Our information here is just one way of reducing commission fees and is NOT the only strategy that is used to reduce costs associated with brokers. Most of what is covered on this topic come down to your behaviors, emotions, and your personality type.