Question

Today, the stock of Apple(APPL) is quoted as: BID $329 ASK $330
You purchase 300 shares of APPL. You pay commissions of 0.1% of the purchase amount

3 Months Later, the stock of Apple (APPL) is quoted as: BID $329 ASK $330 You sell your 200 shares of APPL. You pay commissions of $60 per trade.

What are your total transactions costs in this “round trip?

Answer 1

Stock quote of APPL today is : BID $329 ASK $330

You purchase 300 shares today and you will purchase them at the ASK price of $330 since this is the lowest price at which the shares are being sold by willing sellers.

Hence, purchase amount =  $330 x 300 shares = $ 99,000

You pay commissions of 0.1% of the purchase amount, therefore the Commission you pay = $ 99,000 x 0.1% = $ 99

3 months later, you sell 200 shares of APPL. The stock at this time is quoted as : BID $329 ASK $330

You will sell the shares at the BID price of $329, since this is the highest price at which you can sell and at which buyers are willing to buy the stock.  

Since you pay commissions of $60 per trade, hence on selling the stock you pay this flat commission of $60. You are paying this commission on the entire trade (i.e. the sale of this block of 200 shares) and not per share.

Total transaction costs = Commission paid on purchase of shares + Commission paid on sale of shares

= $ 99 + $ 60 = $ 159