You Should Have Enough Money to Protect Your Profits from Commissions

Trading fees are another important factor you should never lose sight of. If you’re starting with little money in your investment account, commissions can really eat into your bottom line. Commissions and fees vary from firm to firm, but a common-case scenario is that brokers charge a fixed fee for each transaction you make.

Here’s a simple example: say you buy 10 shares of stock at $10 per share which is $100 worth of stock. After a short while the stock goes up $10 and you decide to sell. Now let’s say there’s a $5 brokerage fee which you need to pay for each of the transactions. Which means you’ve gained $10 and lost $10 in trading commissions, ending up with your initial $100 and a zero gain as your bottom line. This would hurt even more if the stock price didn’t go up.

That said, the greater amount of money you invest, the less effect fees have on your bottom-line profits.