Watch those dealing fees…

In my quest to find a new online broker to use as I take on my new role as the “amateur investor” I have come across an interesting offer from The Share Centre.

One of the worries I have about increasing my share buying (and selling) activities is the effect dealing costs have on my overall profitability.

For instance, let’s take an extreme example:
I decide to buy £100 worth of Vodafone shares. I place an order with my online broker who charges £10 for an online trade.

Straight away, it’s cost me £10 (or 10% of the trade amount) to buy these shares. So my Vodafone shares have to rise 10% just to get back the £10 I spent buying the shares. And the same thing happens when I sell the shares, another £10 dealing fee.

So the upshot is, the Vodafone shares that I’ve just spent £100 on must rise 20% for me to break even. And I haven’t mentioned stamp duty, which will cost another 0.5% of the initial purchase outlay.

This is an extreme example as, ordinarily, you wouldn’t buy just £100 worth of shares as the dealing costs represent a much bigger percentage of a small trade than a larger trade (assuming your dealing costs aren’t a percentage of the purchase costs).

This is where the offer from the Share Centre comes in. They have just launched a new trading option called Premium Trader. For £2,500 + VAT per annum you can deal as often as you like without paying dealing costs (you still have to pay the 0.5% stamp duty).

Yes, £2,500 + VAT (£3,000) is a lot of money, but if you trade regularly then this could easily be recouped over the period of a year.

This means The Share Centre is well and truly in the running to become my new online broker.

I’m going to investigate their offer a bit more before I make my final decision though…

Leave a Reply

Your email address will not be published. Required fields are marked *