Round Trip Transaction Costs

AAA

DEFINITION of 'Round Trip Transaction Costs'

All costs associated with opening and closing a financial or other transaction. Round trip transaction costs include commissions, exchange and other fees, bid/ask spreads, market impact costs and occasionally taxes as well. Since such transaction costs can erode a substantial portion of trading profits, traders and investors strive to keep them as low as possible. Also known as round turn transaction costs.

INVESTOPEDIA EXPLAINS 'Round Trip Transaction Costs'

The impact of round trip transaction costs depends on the asset involved in the transaction. Transaction costs in real estate investment, for instance, can be significantly higher as a percentage of the asset compared to securities transactions. This is because real estate transaction costs include registration fees, legal expenses and transfer taxes, in addition to listing fees and agent's commission.

Round trip transaction costs have declined significantly over the past two decades due to the abolition of fixed brokerage commissions and the proliferation of discount brokerages. As a result, transaction costs are no longer the deterrent to active investing that they were in the past.

RELATED TERMS
  1. Commission

    A service charge assessed by a broker or investment advisor in ...
  2. Transaction

    1. An agreement between a buyer and a seller to exchange goods, ...
  3. Adjusted Cost Base - ACB

    An income tax term that refers to the change in an asset's book ...
  4. Capital Gain

    1. An increase in the value of a capital asset (investment or ...
  5. Transaction Deposit

    A banking deposit that has immediate and full liquidity, with ...
  6. Sharpe Ratio

    A ratio developed by Nobel laureate William F. Sharpe to measure ...
RELATED FAQS
  1. What is arbitrage?

    Arbitrage is basically buying in one market and simultaneously selling in another, profiting from a temporary difference. ... Read Full Answer >>
  2. What does Value at Risk (VaR) have to do with maximization of shareholder wealth?

    By enabling investors to estimate with high probability the worst-case and best-case scenarios for the performance of a given ... Read Full Answer >>
  3. How can I calculate the tracking error of an ETF or indexed mutual fund?

    Calculate the tracking error of an indexed exchange-trade fund (ETF) or mutual fund by doing a standard deviation percentage ... Read Full Answer >>
  4. What is the difference between fee-only advisors and fee-based advisors?

    “Fee-only” and “fee-based” sound similar, but there are important differences between these types of financial advisers. ... Read Full Answer >>
  5. How does the risk of investing in the aerospace sector compare to the broader market?

    Investing in the aerospace sector is riskier than investing in the broader market. The most accurate measure of sector volatility, ... Read Full Answer >>
  6. How does a pension income drawdown work?

    While there are similar drawdown plans in the United States, a pension income drawdown plan most commonly refers to a specific ... Read Full Answer >>
Related Articles
  1. Investing Basics

    Principal Trading and Agency Trading

    Ever wonder what happens behind the scenes when you buy or sell a stock? Read on and find out!
  2. Investing Basics

    Paying Your Investment Advisor - Fees Or Commissions?

    The way a professional is compensated can affect quality of service. Learn more here.
  3. Home & Auto

    Flipping Houses: Is It Better Than Buy and Hold?

    Real estate investors can flip a property or use it for cash flow. Find out which will work in your neck of the woods.
  4. Investing

    Fee-Based Brokerage: Will They Work For You?

    Learn the pros and cons of this type of investing and whether it will work for you.
  5. Options & Futures

    Don't Let Brokerage Fees Undermine Your Returns

    Smart investors don't give away more money than necessary in commissions and fees. Find out how to save.
  6. Mutual Funds & ETFs

    Safest Industries To Invest In

    Which are the safest industries and sectors for long-term investment and why?
  7. Bonds & Fixed Income

    How Are Zero-Coupon Municipal Bonds Taxed?

    What every investor needs to know about taxes and zero-coupon muni bonds.
  8. Mutual Funds & ETFs

    Top 4 ETFs That Will Help Diversify Your Portfolio

    Seeking low cost diversification to high quality stocks and bonds? Consider these 4 ETFs.
  9. Bonds & Fixed Income

    Muni Bonds, Taxable Bonds or CDs: Which is Best?

    Here's how to tell if municipal bonds are a better investment than taxable bonds or CDs.
  10. Mutual Funds & ETFs

    Mutual Funds or ETFs: Which is Better?

    Trying to decide between a mutual fund or ETF? Here's what you need to know.

You May Also Like

Hot Definitions
  1. Mixed Economic System

    An economic system that features characteristics of both capitalism and socialism.
  2. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  3. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  4. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  5. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center