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What are transaction costs?
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Transaction costs are the fees and charges that investors pay when buying or selling a financial asset. These costs are associated with executing a trade in financial markets and are usually charged by brokers, exchanges or other financial intermediaries.
Transaction costs influence the overall return of an investment.
When investors buy or sell assets such as shares, ETFs or derivatives, they may pay commissions, spreads or other trading fees. These costs reduce the net profit of a trade or increase the overall loss if the investment performs poorly.
Although transaction costs are often relatively small per trade, they can accumulate over time, especially for investors who trade frequently. For this reason, many investors take transaction costs into account when evaluating their investment strategy and expected returns.
Short example:
Suppose an investor buys shares worth €1,000 and the broker charges a transaction fee of €5. The total cost of the purchase is therefore €1,005.
If the investor later sells the shares and pays another €5 in transaction costs, the total trading costs amount to €10.
Disclaimer: Investing brings risks. Our analysts are not financial advisors. Always consult an advisor when making financial decisions. The information and tips provided on this website are based on our analysts' own insights and experiences. Therefore, they are for educational purposes only.
