Round Trip Transaction Costs

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.

BREAKING DOWN '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.

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