Transaction Cost
The full cost of trading a security, comprising explicit charges and the implicit costs of spread and market impact.
Formula
Total Cost = Brokerage + STT + Exchange Fees + SEBI Fees + Stamp Duty + GST + Spread + Impact Cost
Unit
%
In depth
The explicit half of transaction costs appears on the contract note; the implicit half — spread and impact — never does, and is often the larger of the two for anyone trading actively. Costs scale with turnover, not with capital, so a portfolio turned over four times a year pays four times the cost of one turned over once, for the same money. This is the arithmetic behind the persistent finding that high-turnover retail accounts underperform. Comparing strategies without a full cost model compares fiction.
Worked example
A round trip costing 0.35% all-in, repeated 50 times a year on the whole portfolio, consumes 50 x 0.35% = 17.5% of capital annually. A strategy must beat its benchmark by more than that before it has earned anything.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Transaction Cost” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.