Understanding the expenses involved in trading shares will help you decide when to buy or sell shares in a way that does not lead to unnecessary losses that may result from trading too often.
In South Africa the main expenses incurred in trading shares are:
- Brokerage Fees
- Strate settlement costs
- Investor protection levy
- Value Added Tax (VAT)
- Securities Transfer Tax
- Monthly admin fee
In SA, company shares listed on the JSE can only be bought or sold using a brokerage firm that is recognised by the JSE. These firms make their money by charging a brokerage fee whenever you buy or sell shares. The brokerage fee is usually a percentage of the value of the shares traded. Stockbrokers have the ability to give you a discount on the brokerage fee if they desire.
Strate settlement costs
Strate is a company that provides the technology required to carry out the share trading transactions. The Strate settlement fee is paid to this company and is currently pegged at 0.005787% of the transaction with a minimum charge of R10.71 and a maximum of R70.02 per transaction. This tends to be costly for smaller transactions due to the minimum fee. Some innovative online trading platforms charge fees with no minimum Strate fees with one particular platform charging a flat fee of 0.075%. This works out cheaper for small transactions than the normal Strate fee.
Investor protection levy
This is a fee that is paid to ensure continued regulation of the JSE so as to protect investors. The fee is currently set at 0.0002% of the value of the shares traded.
Value Added Tax (VAT)
A VAT of 14% is charged on all fees that go to the Stockbroker, e.g brokerage fees and any monthly admin fee).
Securities Transfer Tax
This is another form of tax charged by the South African Revenue Service (SARS). This tax is only charged when you buy shares, not when selling them.
Monthly admin fee
Most stockbrokers charge a monthly admin fee to cover their running costs. Some brokers now offer accounts with no admin fees in order to attract new customers. This fee, when charged, usually ranges from R60 to R200 per month and will have a big impact if you invest small amounts.