Costs of Trading in Philippine Stock Market- How much will you need for your first order?

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If you’re new to investing and want to have a quick guide how to start, you can download this beginner’s guide to stocks investing >>> Click here. Just wanna make sure you can take advantage of the bargain stocks we have in the market now before I get to the main topic of this post.

Do you think you’re too small to begin investing?

Think again!

One of the common misconceptions about investing in a stock market is the initial thought that it’s only a game for the rich guys. They believe that they need to be millionaires first, or close to that, to actually start making their money work hard for them.

Of course that’s one of the biggest financial illusions you can ever believe.

While it’s true that there are people in the upper class playing in this battlefield, that doesn’t mean it’s an exclusive playground for them.

Credentials Needed???

A friend actually asked me if one would need any credential to dive into it.

I gave a short answer:  “Appreciating your asset to produce more assets, much like a tree bearing it sweet fruits, that’s the only credential your will ever need”. 
If you’re like that, you’re very welcome to this financial vehicle. Allow me to sing your first lullaby. 
Personally, I started investing with a humble 10k initial deposit. Many hard-core players would really laugh at me, but I was more than happy just giving it a try. And looking back I just couldn’t imagine the journey that little initial amount had unraveled. It was year 2010, the same year I finished my college and landed on my first job. A sweet new voyage for a new phase of my life.

How Much Exactly?

Obviously, it’s not precisely as simple as that. So let’s do the exact math here.

 In reality though, your broker will do it automatically for you each time you place an order, so you don’t really need to dwell on this. But just so you won’t be surprised with all the associated fees and charges that add to your buying amount (or subtract from your sale proceeds), it seems imperative to have a look on this.

Let’s begin!

Your transaction can be a BUY or a SELL order.  Either case, you will need to enter two basic data with your chosen stock (company) – your price and your volume (or number of shares). The two figures will dictate the amount of all the other accompanying charges. Below table summarizes the basic computation of charges involved in buying and selling transactions:


TYPE OF FEES

AMOUNT

Stockbroker’s commission

0.25% of the gross trade amount or 20 whichever is higher

Value-added Tax (VAT) on commission

12% of Commission

Philippine Stock Exchange Transaction Fee (PSE Trans Fee)*

.005% of the Gross Trade Amount

Securities Clearing Corporation of the Philippines (SCCP) Fee (or Clearing Fee)

.01% of Gross Trade Amount

ADDITIONAL FEE FOR SELLING

Stock Transaction Tax (or Sales Tax)

0.5% of Gross Trade Amount

*Varies depending on the stockbroker’s fee structure.


All these charges add to (in case of a buy order) or subtract from (if it’s a sell order) the Gross Trade Amount or Transaction Amount.  
Elementary math tells you how to calculate that gross trade amount:

Gross Trade Amount = Number of shares*Price per share.

Note that the above 0.25% stockbroker’s commission applies to specific online brokers only. The 0.25% is actually the smallest commission any broker can get from every transaction. Personal live brokers can charge as high as 1.5% of the transaction amount given that they obviously get involved in a more tedious process compared to doing it all online. Now you see one of the beauties of using online brokers.


The 12% Value-added Tax (VAT) is levied on the commission charge. The PSE Trans Fee and SCCP Clearing fee are other miscellaneous charges as these institutions are also involved in the orders matching and processing cycle.

You will also notice that the only difference between buying and selling is the additional sales tax in the latter. The 0.5% amount actually makes it the largest slice among all the trading charges in all your sales.

 

Some Useful Notes

At this point, one will realize that with the presence of these transactional fees, you cannot get breakeven from a previous buy order by simply selling it at the same price you bought it. Doing so will definitely entail losses in your part. As a consequence you would need first to wait for the stock price to rise by around 2.25% to get by and get your whole money back. You can calculate exactly what that pivotal price is by doing your own math with the help of the table above, or by using a ready MS Excel-based stock calculator. (You can get your tool for this here).

 It’s also to wise to consider maximizing your every commission by making the gross amount of your trades at around 8k at the least, since 0.25% of it is equal to the minimum 20 pesos commission charge.  (If you don’t get this, read this blog for the explanation.)

 

Check your broker!

The above table shows only the basic computation, but it can have slight modifications from the actual computation of your stockbroker.

In Philstocks for example, PCD Ad Valorem (PSE Fee) includes transaction and other brokerage fees of .0002 totaling to 0.0002217 of the gross trade amount.

BPI Trade has this computation in their site:
For both buy and sell transactions, a PSE (Philippine Stock Exchange) Fee of PhP 0.00012 for every PhP 1.00 gross value traded, and a SCCP (Securities Clearing Corp. of the Philippines) Fee of PhP 0.00011 for every PhP 1.00 gross value traded is charged. For buy transactions, a Documentary Stamp Tax will be charged beginning March 20, 2009 computed as follows: [(No. of Shares * Par Value)/P200]*0.75. This is applicable to all issues except SLF, MFC, ABSP, and GMAP which will have a different DST rate. A PDTC Depositary Maintenance Fee of PhP 0.000008333 will be charged per month based on market value of holdings as of month-end. All fees and charges are for your account.” 


For Citiseconline/COL Financial, the table above shows their exact computation. 

Sample Computation

As a practice example, you can look at below sample confirmation invoices from Citiseconline (COL) for a buy and sell transaction, and confirm that all the figures can be derived from the table above.


BUY TRADING CONFIRMATIONS: BUY of 1000 shares of ALI at 15.3 per share


Stock

Quantity

Price

Gross Amount

Commission

VAT

PSE

SCCP+DST

Total Charges

Total Amount


ALI

1,000

15.3 

15,300

38.25 

4.59 

0.77 

1.53 

45.14

15,345.14




SELL TRADING CONFIRMATIONS: SALE of 600 shares of FGEN at 14.62 per share



Stock

Quantity

Price

Gross Amount

Commission

VAT

PSE

SCCP

Sales Tax

Total Charges

Total Amount


FGEN

600

14.62 

8,772.00

21.93

2.63

0.44

0.88

43.86

69.74

8,702.26













Dream Big, Start Small

It’s safe to say now that that you can actually have your first buy with as low as 5k. In fact my first ever transaction cost me less than 4k (using Philstocks broker). It was the purchase of 2000 shares of MEG  when it was still at 1.87 pesos per share, which I excitingly sold three days after at an appreciated price of 2.05. HAHA.



You see, you really don’t need big chunk of cash to begin investing. Never make that excuse of having not so much money to begin empowering your financial life. If you know Bo Sanchez, his maids and drivers have actually started investing earlier than me (which is by the way one of the things that pushed me to do the same). I’m pretty sure you earn way far bigger than those folks. So if they were able to do it, there’s no reason why you can’t. Just be very careful doing it though! 
HAPPY 2012 MY FRIEND! May this year be a breakthrough in your finances!


Have fun investing,
oMeng

PS: To be more honest, the story of   Bo Sanchez’s maids investing in stocks is a big part of the motivation why I did the same.  I just couldn’t accept that in the future, a maid will be better off financially than me notwithstanding the bigger salary I have. Pride I think. HAHA. And so I’m spending all the time I have now to catch up with them. 
Join me in that challenge too! Read and be inspired by their story hereDownload Bo’s My Maid Invests in the Stock Market and Why you should too!


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Great blog sir!
Just a question as im an OFW. Would there be any required other taxes once we get our profit?

Since COL financial is requiring the TIN in the profile, do we need to file ITR for any profit?

Thanks!

  • Arlet Villanueva

    This post is really encouraging for fresh grads like me. I’ll keep this in mind! Thanks, and please don’t stop blogging about investing!

    P.S.
    The capthca are more like symbols than letters 😐 HAHAHA

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