Sunday, 18 January 2015

Paying To Trade

How much is it sensible/reasonable to pay to trade and should being able to do so at a lower price help you decide when?

For the last couple of weeks I have had around £10,000 cash sitting in my ISA account due to a further sale of my CIS UK Growth fund. I've been reluctant to buy anything with it as doing so would cost me £10 per trade. Because Interactive Investor owe me £30 commission credit as part of my transfer deal which should arrive any day now I've been hanging on and waiting for this before doing any buying or selling. (II have obviously over stretched themselves due to their low costs and are definitely struggling to keep up with some of the admin on accounts. Things seem to get sorted in the end but you do have to be prepared to wait. I'm hoping this will improve - transferring our ISAs to them has saved us a lot of money so I'm not regretting it just yet.)

When I was a very new investor and keen to see how online trading worked I made the "mistake" of racking up trading costs on very small buys - a couple of times I think I paid £10 to buy £150 worth of funds which is complete madness. These days my regular trades with II are done on a monthly basis and cost £1.50 each, which I have usually managed to squeeze out of the remaining transfer commission credit or the £20 per quarter which II give all their customers. In effect I've been dealing for free for the last 6 months or so. This won't continue for much longer as this will be my last instalment of transfer commission so I will need to squeeze both mine and my husband's regular buys out of the £20 per quarter (we have linked accounts so only pay one set of fees and get one lot of credit). This gives us around two buys a month each, if we want to sell this will cost the full £10.

I'm therefore trying to make sure that all the selling we need to do in order to rebalance both accounts is done over the next few months. This all makes sense from a superficial viewpoint, but I'm not so sure I should be worrying so much about the costs when other factors may carry far more weight. For example, maybe I should have spent £10 and bought £3,000 worth of the iShares UK Div Plus ETF I've got on my shopping list last week when it dipped, rather than hang on and wait till I can buy using the commisson credit. Buying slightly cheaper might have more than compensated for the trading fee.

This seems to be another of those financial "mind set" tricks that can trip us up due to a natural reluctance to speculate, or "waste" what we have in pursuit of greater returns, along with the mantra that tells us it is foolish to pay over the odds to trade. Sometimes it plainly is "worth it".

Strangely I don't worry about this kind of thing when managing my SIPP with Fidelity as I don't really have a choice about when I buy over there. Buys can only be of the bigish kind (you need at least £800 for a lump sum), or made via monthly contributions, and, as I'm not needing to sell anything I don't have lots of unallocated funds lying around. It is all "free" (well, sort of, it's covered by the 0.35% platform fee whereas II is a flat rate £20 per quarter) but it isn't as easy, or immediate, as it is with II. To be honest I prefer the feeling of being "closer" to my investments that I get with II even if it does mean I have to worry about working out and holding myself to a sensible trading strategy.

And speaking of strategies, what % of a buy (or sell) is it sensible to pay in trading costs? Has anyone worked this out? What effect do the costs on your platform have on your trading activities and frequency? Any thoughts very welcome.


  1. I know what you mean Cerridwen - when I bought my first lot of shares this summer, I paid I think £11.95 broker fee and feeling rather deflated when I saw the number, I realised that I would prefer to buy shares via regular payments, only incurring the £1.50 fee like you do.

    With a lump sum however, I think I would have swallowed the fee - it's only a large fee when you're investing in small amounts I guess.

    But still, perhaps you will be able to stick to the two buys a month?

    With Hargreaves Lansdown, the buying and selling of funds is free (hence the ease with which I was able to rebalance). Buying shares/ITs cost £1.50 via regular investments but this isn't available for ETFs, which cost the £11.95 each time.

    Sounds like you need to sort out another spreadsheet to work out your own strategy!

    1. Hi weenie,

      I can see why free trading for funds would be a big help with rebalancing. I've been selling my CIS UK Growth fund in chunks when I had the credit (I was too chicken to do all £45,000 at once - scary :-))

      I finally feel like I'm getting there with my rebalance though so I might be able to squeeze my dealing into two regular buys a month by the end of this quarter.

      I've still to rebalance my husband's ISA as it's only just been transferred, but I'll probably bung most of it into the Vanguard LifeStrategy 60% and 80% I use for his regular investments.