Monday, July 29, 2013

Buy minimum 1000 lots?

One of my good friends learn to buy share by buying the minimum of 1000 lots. This trigger my thinking that, "Is it ok to buy the minimum of 1000 lots?".

Most trading agency charge minimum $25 per transaction. If you buy 1000 lots, the break-even minimum charge of $25 => $25/0.28% = $8,926. In other words, if you buy a share of price $8.926, they will charge you $25, same as the minimum charge.

Then what's the impact of charges over the total cost/invested amount? As shown below, if you buy 1000 lots of a share with price $0.5, you will be charge of $25.24, which is equal to 25.24/(500+ 25.24) = 4.8%. So, if you invest just $525.24, you loss 4.8% immediately. Similar with price $1 share. You invest $1,025.48, you loss 2.5% due to charges.

Conclusion: when the share price is small, try to buy more lots. Try to make sure every transaction cost at least $2,000 (e.g. 2,000 lots of share with price $1 or 1000 lots of share with price $2).


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