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Here’s What Singaporean Investors Need to Know About Commission Fees and How They Affect Investing

Mark Cheng 0 Comments

kim eng invest commission fees

With Singaporeans very much focused on the cost of living these days, many people want to make sure that their money is working much harder for them, which would explain the huge increase in popularity of cashback credit cards.

The same can be said for the increase in retail investors, with Singaporeans looking to grow their money either for short-term gains or for their future retirement. This is certainly a good thing, and understanding how to maximise your money is definitely critical especially if you are planning for big events in your life.

One of the things, however, that will affect how much money you make is the fees that you pay when making trades. What many people don’t realise is that these fees can erode your earnings if you are not aware of what fees are being charged and how you can better structure your investments to ensure that you don’t lose out more than you should. But first, let’s have a look at commission fees themselves, which form the foundation of what an average retail investor will need to pay when investing.

 

What are commission fees?

commission-fees@2x

Commission fees are essentially a service charge that you pay to your brokerage firm when you execute a trade. This varies from firm to firm, depending on the type of service provided. Some brokerage firms don’t provide any sort of advice or management, but just help to execute buy and sell orders, which means you have to do everything yourself. Other brokers may provide services such as research, investment advice, and more, and ultimately, your choice would depend on your own investment behaviour and goals.

This might be a juncture where the “typical Singaporean” mind-set kicks in and the lowest price wins, but it’s crucial to know your investment goals and what you need to achieve them before making your decision.

 

Commission Fees: Minimum Commission and Percentage Rates

Most Singapore firms’ fee structures are a combination of both minimum commission and percentage rates.

Here’s a simple illustration:

commission-fees & percentage rates@2x

In this example, the minimum commission is $10 per transaction. The percentage rate is 1% of each trade. The commission fee would be whichever is higher.

Why is understanding this important?

Well, if you are looking to invest a small amount each time, you will most likely be charged the minimum commission. Hence, you should look for a brokerage firm with low minimum commission. If you are looking to make bigger investments, then be mindful of the percentage rate.

Though this is by far the most common commission fee structure, brokerage firms sometimes use a flat fee structure. That means there is a fixed absolute amount charged regardless of the size of your trade value.

Let’s look at another example. Maybank Kim Eng recently revised the rates for their KE Trade Prefunded account. A prefunded account, or cash upfront account, usually has lower commission rates as you are required to fund your account before you trade, and your stocks are also kept in the custody of your brokerage firm instead of with the SGX Central Depository (CDP).

KE Trade Prefunded @2x

The table shows the minimum commission and percentage rate. As you can see, this fee structure applies to other markets too, like the US markets’ fees of USD 10 minimum and 0.18% of your investment.

 

Now that you understand how commission fees work, here is a comparison of the Prefunded rates from other brokers:

sg-us market@2x (2)

Source: Brokers’ websites as at 4 November 2016

Again, while it is certainly important to understand the fees that you will have to pay, it’s also very important to consider the other services that each brokerage firm provides before making your decision. We will touch more on this later.

  

The other fees

Assume that you trade in the Singapore market, for example. The following fees will apply in addition to commission rates, and these are generally consistent across brokerage firms:

  • Clearing fees (0.0325% of your contract value)
  • SGX trading fee (0.0075% of your contract value)
  • GST of 7% on the commission and fees mentioned above.

There are other fees on top of commission rates that are applicable for foreign trades – it is best to check with your brokerage firms to get the exact figures.

 

The entire package matters

It might be very easy to just look at numbers and make a snap decision on which platform to use, but a lot of brokerage firms provide other services and tools on top of the trading services provided, and these can be invaluable additions to your investment journey.

For instance, Maybank Kim Eng’s platform also provides access to research reports and analysis tools that allow investors to better manage their investments and make timely decisions. They also provide free investor education seminars and webinars, not only for their clients, but also for the general public to attend as well. In addition, the platform allows you to trade in global stock markets such as the NYSE, NASDAQ, HKEX and more.

We’ve spoken previously about how mobile apps can make a huge difference to your trading behaviour, and Maybank Kim Eng’s mobile trading platform is certainly at the top of its game, having won the Best Mobile Platform award from Investment Trends Singapore Broking Reports, for the years 2011-2014, as well as the Best Mobile Trading Platform from Global Banking & Finance Review Awards in 2015.

The point here is this: deciding on a brokerage firm is about commission rates, but you should also weigh this cost against your investment goals and think about the other services you need. Choosing a brokerage firm that gives you a good balance of both will certainly make your investment journey a lot smoother and fuss free, and help to work towards achieving your long-term goals.

 

This article is brought to you in collaboration with Maybank Kim Eng. To find out more about their KE Trade Prefunded account, you can go here.

Disclaimer: This message is for general knowledge or information only. It is not an offer or invitation to buy or sell securities, futures or other products or services. Our products or services vary in different jurisdictions, subject to their respective terms and conditions and the licences our affiliates and us hold. This message is not an advice or recommendation for any financial planning, investment, legal, tax or other purposes and, accordingly, no responsibility or liability is assumed by us or our affiliates, whether directly or indirectly, from any person taking or not taking action. All information in this article is accurate as of 4 November 2016.

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Mark Cheng

I rant and rave a lot, but when I'm not busy doing that, I'm managing the content for MoneySmart. I love Singapore, but I also believe in helping it to improve bit by bit, and that's where MoneySmart comes in. Have some thoughts? Drop me an email at mark@moneysmart.sg.

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