Brokerage fees are almost inevitable when trading stocks and bonds. But what does commission really mean and how should you think about it when investing?
Learn more about the topic here and get answers to all your questions about mileage.
Brokerage is the fee you pay when trading securities such as shares and bonds. The commission goes to the broker or bank that is responsible for executing the trade in the securities.
Brokerage fees are charged on both the purchase and sale of securities and consist of a fixed base amount and/or a percentage of the amount being bought or sold.
You can think of brokerage as the price of your 'admission ticket' to the big trading market.
How much you pay in commission depends on which platform you invest on. Typically, platforms have a minimum commission - often between 10-30 kr. If you trade at a high enough level to exceed the minimum commission, the commission will instead be a certain percentage of the amount.
Often, larger investments will have a lower percentage of commission, while smaller investments may have a higher percentage.
Imagine you need to invest in shares on Platform X. They have a minimum commission of DKK 19 and otherwise a commission of 0.1% of the invested amount. You've seen that Novo Nordisk is doing well, so you want to buy one share. Novo Nordisk's share price is just around DKK 1,000, and for that trade you have to pay a minimum commission of DKK 19. If you look at the percentage, the commission amount will be 1.9% of your purchase. This also means that the first 1.9% you hopefully get in return on the share is just the commission payment. This means that even if you invest a small amount of money, the commission will make up a relatively large part of your investment.
If you had invested DKK 5,000 instead, the commission amount would still be the same, as the minimum commission does not change. In this case, the commission is now only 0.38% of your DKK 5,000 investment. If you had invested DKK 15,000 instead, the commission amount would still be DKK 19 due to the minimum commission, but now the commission is only 0.13% of your DKK 15,000 investment. As you can see, the commission percentage decreases further as the investment amount increases. But as you can also see, you're actually not quite down to paying the 0.1% commission, which is otherwise the most attractive.
If the minimum commission is $10, you actually need to invest more than $10,000 per trade before you get down to the 0.1% commission.
Thus, it is important to be aware of the minimum commission, especially when investing smaller amounts. If you plan to invest smaller amounts on a regular basis, the minimum commission can have a significant impact on your overall costs.
As you can see, it is important to be aware of the brokerage rate when investing. Therefore, it is also relevant to look at how to calculate the brokerage rate.
If you want a quick overview of how much you'll pay in commission in absolute terms on a trade, it's a simple calculation. Simply multiply the amount you want to invest by the commission rate (assuming you invest enough to exceed the minimum commission). For example, if you want to invest DKK 20,000 and the brokerage rate is 0.1%, the calculation looks like this:
DKK 20,000 x 0.01 = DKK 200
If, on the other hand, you want to find out what percentage the commission (in this example we use the minimum commission of DKK 19) represents of the total investment (here DKK 3,500), the calculation looks like this:
(19 / 3,500) x 100 = 0.54%.
Although it may seem more attractive to pay DKK 19 in commission rather than DKK 200, you should be aware that the commission percentage is about 5.5 times higher when you pay DKK 19 in commission in this example.
When you're investing, you're obviously interested in getting the lowest commission on your investments, but how do you do that?
There are a number of things you can do to find the cheapest brokerage rate:
The first step in finding a cheap commission is to research the market and compare the commission rates of different trading platforms. Some offer lower commissions than others, so it's worth researching the market thoroughly and finding the most competitive price.
When looking for the cheapest brokerage fees, it's worth mentioning that foreign stocks and bonds typically have higher brokerage fees than Danish ones. So if you're only looking at which investments have the lowest commission, it typically makes sense to look at Danish securities.
As mentioned above, it's super important to pay attention to the minimum commission. If you know that you will be making a lot of smaller investments, you should look for a platform with a low minimum commission. At the same time, it's generally important to pay attention to the minimum commission in relation to the size of the investment to ensure that it doesn't make up too large a percentage of your investment.
If you don't want to pay commission on your investments, you might want to look into crowdlending investing through Fundbricks. There are no brokerage fees or other administrative costs.
Through crowdlending, you have the opportunity to invest your money in the financing of new real estate projects. When you lend your money, you receive interest as a return on your investment. Usually, the return is between 9-13% per year.
In other words, you get your money repaid over a set period of time by the borrower, who also pays interest on the loan. This interest is paid directly to you. You can also read all about negative interest and how you can make a good business with Fundbricks.
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