InvestorQ : Do trading costs really impact my break even while trading?
Niharika Kamble made post

Do trading costs really impact my break even while trading?

Answer
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Niti Shenoi answered.
2 years ago


You will be surprised but the trading costs really make a big difference to your overall breakeven point. The reason we are evaluating costs so closely is that these costs matter a lot in the final analysis. Consider a simple table of how brokerage rate impacts the breakeven of Reliance Industries…

Brokerage Rate

Total Effective Cost

Movement to break even

0.10%

0.23%

Rs.2.23

0.20%

0.35%

Rs.3.40

0.30%

0.47%

Rs.4.56

0.40%

0.59%

Rs.5.72

0.50%

0.70%

Rs.6.79

Now these are the costs entailed on one side of the transaction. But when you buy and sell the delivery stock then there will be two sides to the transaction. So if you buy 600 shares and sell 600 shares of RIL, then your total cost of transaction will be twice as shown in the above case. At a brokerage rate of 0.10%, you will require a movement of at least Rs.4.46 (2.23 x 2) in the price of Reliance Industries to cover your cost. Your profits will only start after that. But if the brokerage rate was 0.5%, then your break even goes up to Rs.13.38. That will be the price movement you will need on RIL to just break even. After that you need to make a profit and also exhibit a positive risk-return trade-off. That is why costs matter so much to trading.