Let’s take a fictional, medium-sized company called 'ABC', which is currently trading on the stock market at 299.5p to sell and 300p to buy.
Our investor has around £1,500 to invest so they decide to buy 500 shares. This means they have invested £1,500 in ABC, but on top of this there are some trading charges of course. First of all there is commission to pay, and this amount can vary from very little to quite a lot, depending on your stockbroker and the services offered. Let’s assume our investor’s stockbroker charges a rate of £10 for commission on this trade. But we are not done with charges, there is also the government’s slice, or stamp duty, which at the time of writing was 0.5% on shares, so that’s another £7.50 in charges on this transaction.
Now, let’s fast forward a month into the future.
Our investor is delighted that ABC's share price have risen by 10% and so they decide to sell. The market price for ABC has risen to 329.5p/330p and they sell 500 shares at 329.5p per share, receiving £1,647.50. There is usually a charge for selling through your stockbroker, so let's assume this transaction costs £10 again. Now that our investor has concluded the sale of their shares, let's look at what their total profit is.
To buy the shares, including stamp duty and commission, they had to spend £1,517.50. When selling, after paying commission again on the sale, they received £1637.50, so the profit on this deal was £120 – an excellent return after just one month, but was there a more cost-effective way of doing this?