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Making our money work for us in the financial markets is important to build our wealth. However, we also need to understand the risks of investing and trading in stocks. For a start, there’s always a chance that markets go down, affecting our returns.
While this is entirely out of our control, we have a greater say in something else that chips away at our returns – the fees we pay when investing in stocks. Paying more in fees inevitably eats into our potential profits. Over an extended period, higher fees can add up to a lot of money siphoned out from our returns, especially since we could have invested and earned returns on it.
At the end of the day, we cannot run away from paying some types of fees when we invest. What we can do is make sure we understand the fees we are paying, and, as far as possible, keep them to a minimum.
Read Also: How Much Can Commission Fees Affect Your Returns If You Invest A Small Amount Regularly?
Types Of Fees You Have To Pay When Investing In Stocks
#1 Commission Fees
Many investors put a spotlight on commission fees, and rightly so. Traditionally, commission fees have been the biggest cost when we invest in stocks.
Whenever we buy or sell a stock, our brokerage will charge us a commission fee to execute the trade. Depending on the brokerage, typical commission fees in Singapore range from 0.28% to 0.08% of our trade value. In general, the higher the amount we are trading, the lower the percentage. Many brokerages also set a minimum brokerage commission fee of about $8 to $25.
For example, if we invest $5,000 in a stock, we may incur up to $14 ($5,000 x 0.28%) in commission fees. This can go up to $25 if our brokerage levies a higher minimum commission fee. While this may not feel like a lot of money, it can snowball into a sizeable amount if we trade often or invest smaller sums regularly.
Online brokerages, such as Tiger Brokers, usually charge commission fees that are much more competitive. For example, investors who trade Singapore stocks through Tiger Brokers will incur a commission fee of just 0.03%, with a minimum commission of $0.99 per trade. If we invest in U.S. stocks, we are charged US$0.005 per share, with a minimum of US$0.99 or maximum of 0.5% of the trade value.
Source: Tiger Brokers
(all screenshots from Tiger Brokers)
Fortunately for Singapore investors, Tiger Brokers recently announced zero commission when we invest in Singapore, Hong Kong, China A-shares (via HKEX northbound), and the U.S.
All new and existing investors with Tiger Brokers will enjoy zero commissions for 1 year when we invest in Singapore, Hong Kong and China A-shares – in the form of an in-app reward card. We have 20 days to activate this reward card upon receiving it, allowing us to only activate it when we make an investment.
To unlock lifetime zero commissions for the U.S. market, we simply need to refer a friend to open a Tiger Brokers account.
#2 Platform Fees
Many online brokerage firms, such as Tiger Brokers, also charge a small platform fee. From the charts above, we can see that its platform fees are:
| Markets | U.S. | Hong Kong | Singapore | China A-shares |
| Platform Fees | USD 0.005 / Share – Min. USD 1 / Order – Max. 0.5% * Trade Value / Order |
0.03% * Trade Value – Min. HKD 8 / Order |
0.03% * Trade Value – Min. SGD 1 / Order |
0.03% * Trade Value – Min. CNH 8 / Order |
Source: Tiger Brokers
#3 Regulatory Fees
In addition to fees charged by our stock brokerages, we will also incur some fees levied by regulatory bodies. Such fees will also vary across the different stock markets.
For example, if we are investing in Singapore, we will incur a Trading Fee of 0.0075% of our trade value and a Clearing Fee of 0.0325% of our trade value. While this fee is collected by Tiger Brokers, it is charged the Singapore Exchange (SGX).
For investors buying U.S.-listed stocks, we will incur a Settlement Fee. An additional SEC Membership Fee and Trading Activity Fee is applicable for sell trades.
Regardless of the markets we invest in, Singapore investors will also incur a GST of 7% on certain fees we pay.
#4 Custodian Fees
In Singapore, many of us would have our SGX-listed investments stored in the Central Depository (CDP).
However, we can also store local and overseas stocks with our brokers. This is one reason we enjoy lower commission fees, as we will have to use the same brokerage firm when selling our investment, creating stickiness to the brokerage platform.
In Singapore, SGX charges a custody fee. On its website, Tiger Brokers mentions that it waives off this fee for investors who have trading activities within the quarter. Otherwise, a nominal fee of $2 will be charged per quarter.
For investors who hold SGX counters, Tiger Brokers must hold these stocks in segregated custodian accounts
#5 Deposit or Withdrawal Fees (and Currency Conversion Fees)
Majority of online brokerages practice upfront cash payments. As such, we need to deposit cash into our brokerage platform before we can start investing.
When we sell our investments, we will also see our cash balance within our brokerage platforms. We need to input an instruction to withdraw the funds if we want our money back in our bank account.
We may incur deposit or withdrawal fees on certain platforms. While Tiger Brokers does not charge such fees, deductions by our bank may occur if we are remitting or withdrawing funds from or to non-Singapore banks.
With global markets on offer within the Tiger Brokers app, we may require to exchange our funds from Singapore Dollars to U.S. Dollars or Hong Kong Dollars, and back again after divesting.
Tiger Brokers does not charge any currency conversion fees. However, if we want to deposit or withdraw foreign currencies, we may incur a charge if we do not do it correctly. For deposits, we need to ensure that we are sending U.S. Dollars and also that we select Tiger Brokers U.S. Dollars account. For withdrawals, we can withdraw foreign currencies into our DBS/POSB account for free, while there will be a bank fee for non-DBS/POSB accounts.
#6 Investment Level Fees
Certain counters that we invest in also have built-in costs. One example is ADRs, or American Depository Receipts. ADRs are typically overseas companies listed in the U.S. Companies such as Tiger Brokers’ parent, UP Fintech (NASDAQ: TIGR) is an ADR, while other popular ADRs include Taiwan Semiconductor Manufacturing Co (TSMC), Alibaba, AstraZeneca, Rio Tinto, NIO, and many more.
Tiger Brokers advises that “ADR fees usually range from 1 to 5 cents per share”. Usually, ADR fees are deducted off dividends. If the ADR does not pay one, then it will be collected through an investor’s brokerage.
Other common types of investments that have in-built costs are ETFs and REITs for the management of the securities. These fees are never charged directly to investors, and instead, are taken from the cash flows of the underlying investments instead.
Lifetime Zero Commissions For A Diversified Portfolio
Prior to online brokerages coming into Singapore, one of the biggest pain points for local investors was the high commission fees we were paying. In addition, there was also a lack of transparency in exchange rates when investing in overseas markets.
Tiger Brokers arrived in Singapore in February 2020 – providing competitive commission costs, and also a very transparent depiction of all of its fees and charges on its website. It also carries a comprehensive FAQs to answer further questions that investors may have about our account-related charges.
Going a step further, all new and existing investors can benefit from zero commissions for 1 year when investing in Singapore, Hong Kong and China – through the reward card. We can also enjoy lifetime zero commissions for the U.S. market and receive a free Grab share when we refer 1 friend to the platform from now till 30 August 2022.
In addition, if our friend deposits $1,000 in their account and makes 5 new trades from now till 30 August 2022, we will also get $88.
Our friend, as a new investor with Tiger Brokers, will get 180 days of commission-free trades for U.S. stocks and a free Grab share. New investors also receive the same 1 year zero commissions reward card for Singapore, Hong Kong and China stocks that they can activate in-app.
After depositing $1,000 in their account and making 5 new trades, they will also receive $88. Similarly, new investors can also unlock the lifetime zero commissions for U.S. markets when they refer a friend.
There’s a good argument that every investor should strive for some exposure to the U.S. and Hong Kong and China markets, the two biggest economies in the world. Furthermore, as Singapore investors, we may want to start in Singapore or have a portion of our portfolio exposed to the Singapore market too. This way, instead of penalising investors who want greater diversification, Tiger Brokers encourages investors to build global portfolios.
Lower Commission Fees Just One Part Of The Equation
Paying a lower commission fee is just one part of the equation to earn better returns. The Tiger Brokers app offers a superior user experience with comprehensive free digital tools to help us become better investors. This includes giving us up-to-date companies’ data and charts to analyse our investments, as well as the ability to keep track of our returns – taking all fees into consideration.
On the Tiger Brokers app, we can also access a trove of high-quality content from like-minded investors and traders, as well as engage with a community of 2.5 million users. These include a curated line-up of market commentary and earnings call videos, breaking news and investment ideas from reputable publishers, as well as keep up with significant announcements via a calendar for companies’ results and economic data coming out.
Read Also: Step-By-Step Guide To Opening An Account With Tiger Brokers Singapore
The post Understanding All The Fees You Pay When Investing In Stocks – And How To Reduce Them appeared first on DollarsAndSense.sg.
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