What is a transaction cost?

A transaction cost is an extra payment on top of the cost of buying something. This usually comes in the form of commission - a percentage of a total figure - or a one-off set fee.

Where have you heard about transaction costs?

If you've ever spoken to an investment adviser, they will have probably mentioned transaction costs - because they probably mentioned their fee.

Outside of investment, transaction costs are very common. For example, you would have likely paid transaction costs if you've purchased property - a fee on top of the cost of the house.

What you need to know about transaction costs.

Always know the impact a transaction cost will have on your total profit or loss, as over time they can make a real dent in your returns.

Investors will generally take transaction costs into account when calculating potential profit and planning their strategy.

If a transaction cost is a percentage, consider how much a security will need to increase in value prior to you selling, in order to make a profit after your transaction cost is taken off.

If your transaction cost increases over time, consider how long you can delay selling before the transaction cost becomes too expensive.

It's usually advisable to treat a transaction cost as a separate payment - always band it together with your total figures.

Remember, whenever there's a chance for profit, there's a chance for loss.