What are online transaction fees

Transaction costs

Transaction costs arise from the transfer of capital and goods as well as the underlying rights of disposal, which are based on property rights. Transaction costs are not incurred for the direct manufacture of products, but for the Exchange from an economic entity on the other hand. The level of transaction costs is a decisive criterion for the efficiency of economic processes; they can establish a significant competitive advantage. In order to achieve savings, however, transaction costs must be transparent, which is particularly not the case with complex financial products. Regulatory measures are intended to remedy this in Europe. The German fund associationBVI however, criticizes the proposals of the European supervisory authorities (ESAs) for the implementation of the regulation on packaged investment products (PRIIPs), because “the ESAs propose a new approach which is unusual in the market. You want to define the difference between the actual price when buying or selling a security and a certain reference price as transaction costs. ”(Source: cash-online.de). Until now, transaction costs in the narrower sense were the costs of third parties for the execution of securities transactions.

Types of transaction costs

The transaction costs include:

  • Information costswhich serve the procurement as well as the search for suitable business partners; also referred to as initiation costs
  • Agreement costs, these are contract negotiation, decision, agreement and contract drafting costs
  • Processing costs for the contract or the sale and the coordination of the contract processing control costs for deadline, quality, price and other contractual agreements
  • Adjustment costs, for example for changes to the contract or the insolvency of the contract partner.

Importance of transaction costs

The transaction cost theory is part of the Institutional economicsfrom which a reason for the existence of markets and economic agents can be derived. As early as 1937, the British economist Coase examined the internal transaction costs in operation compared to those of the markets. He was the first to discover that every transaction, even within the company, is associated with costs that have to be taken into account in an economic perspective. This knowledge is used to determine which kind of purchase of a good is cheaper: own production or purchase from third parties on the market. For his studies Coase received the 1991 Nobel Prize. With his publications he created the basis for the contract-oriented consideration of economic activity: for example, when it is worthwhile to found a company because the transaction costs on the market are higher than the internal transaction costs. Conversely, it can be deduced from this that it makes sense to procure the required service externally if the in-house execution is more expensive than the external acquisition. The outsourcing of tasks is more advantageous for standardized work processes, for recurring processes with little specificity and few uncertainties. The internet revolutionized the possibilities of outsourcing. Using the web resulted in a significant reduction in transaction costs. The Internet created the basis for goods to be exchanged around the world quickly and without complications. With it the advantage of internal execution of activities diminished, it favors unconventional offers. in the Finance These are, for example, robo advisors, crowd investing platforms or other FinTechs who buy shares from conventional banks and asset managers. Innovative providers have much lower information and processing costs online than the established providers, Customers benefit from lower fees from that.

Practical implications

The amount and recording of transaction costs is by no means just a scientific-theoretical problem. Their exact calculation and subsequent reduction has a direct positive effect on the profit of the Economic subject out. However, it is very difficult to quantify the cost of a transaction. It is not enough to record them because they cannot be clearly assigned to the product in terms of production, sales, management, development or financing. The operational accounting must map the transaction costs realistically through delimitation and exact allocation. In the Investment the transaction costs essentially determine the Return of the investor. In securities trading, transaction costs are the ongoing fees of third parties for buying and selling securities. These are the costs of the bank, broker, broker and the stock exchange. In the case of investment products, such as open-ended investment funds, however, it is common practice to deduct the transaction costs from the total costs. In addition, the information costs of the individual are not included. The more frequently a security is traded, the more negatively the transaction costs affect the investment result.

Conclusion

Transaction costs are an important criterion for business decisions at the operational level. The main issue here is where a service or product can be manufactured most cost-effectively: within the company or by Outsourcing. For investors, transaction costs are just as important, they reduce their returns. The higher they are and the more they trade, the greater the losses for investors.
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Central statements:

  • Transaction costs are incurred for the exchange of goods: search and information costs, negotiation and decision costs, control costs, costs of contract implementation
  • Exchange with low production and transaction costs is efficient
  • Entrepreneurs have to decide whether products are manufactured in-house or purchased from third parties on the market
  • Internet created new, effective ways to obtain services more cheaply outside of companies
  • Investors should compare transaction costs so that they do not unnecessarily burden their returns