Trading costs can take big bite

NEW YORK – If you’re trading stocks, especially small-cap stocks, unseen forces may be gobbling up your gains.

Trading costs have come down in recent years as commissions have been squeezed. But if you’re buying and selling frequently, they add up. And if you’re buying and selling stocks that aren’t very liquid, they add up even more.

“Trading costs are way higher than most people think, including most money managers and certainly most clients,” said Ted Aronson, a partner at Aronson Johnson Ortiz.

The costs that eat into your gains start with commissions. At Charles Schwab Corp., commissions averaged $13.39 per trade during the first quarter, which ended in March. E-Trade Financial Corp.’s average commission per trade for 2005 was $13.82. You may have paid $13.39 (or more) to buy a block of stock and then another $13.39 to sell it. Your gains will have to be greater than $26.78 for you to get close to breaking even.

The brokerage firms don’t break down their commissions per share, but Wayne Wagner, a consultant to ITG Solutions Network, estimates that commissions cost 3.2 cents a share on each side of the deal. That would mean 3.2 cents when you buy a share and another 3.2 cents when you sell, knocking 6.4 cents a share off your net gains.