Low trading costs: a gateway to supercharging diversification Low trading costs: a gateway to supercharging diversification Low trading costs: a gateway to supercharging diversification

Low trading costs: a gateway to supercharging diversification

Pricing 5 minutes to read
John Hardy

Head of FX Strategy

Summary:  This article makes clear that Saxo’s lowering of trading costs can provide a gateway to inexpensively diversifying your portfolio. Adding diversity to a portfolio has long proven a way to lower risk and improve the likelihood of positive portfolio growth over long time horizons. With lower trading costs, even investors who are just starting out can create diverse portfolios of multiple stocks and add to and change these positions with minimal impact on returns.

The need to diversify investment portfolios is a long-established principle for investors to follow. A paper on portfolio diversification written back in the 1950’s by budding economist Harry Markowitz, in fact, was awarded a Nobel Prize in 1990. As Markowitz said in interviews on the subject “I was awarded [the prize] for portfolio theory, which in brief says: don’t put all of your eggs in one basket.” While diversification can never fully eliminate risk, it is important for any investor building a portfolio over a lifetime not to be overexposed to the risk of any single stock or sector. 

Especially for the investor just starting out on an investment journey, building a portfolio can seem a daunting task, and trading costs are a critical consideration before making any investment. That’s particularly the case for smaller position sizes, where trading costs risk representing a large percentage of the likely return on a portfolio. And inevitably, as investment position sizes fall, fixed trading costs can severely downgrade portfolio returns.

New, lower Saxo trading costs are a gateway to supercharging portfolio diversification.

Just as active traders and investors will benefit from Saxo’s lower trading costs for more frequent trading strategies, so too will buy-and-hold investors. To illustrate the impact of Saxo’s lower costs, let’s take a buy-and-hold investor, a Saxo Classic client with a USD 10,000 (about GBP 8,000) account balance. This investor wants to invest in ten US stocks with approximately equally sized positions of USD 1,000 each. Using old prices, the cost per trade would have been 0.1% of the amount of each position, or a minimum of USD 10. In this case, the minimum fee applies since 0.1% times USD 1,000 would be USD 1, far below the minimum USD 10 fee. 

If we multiply that minimum USD 10 commission times ten positions, our investor would have paid USD 100 in commission costs or 1.0% of the account value. But under the new commission structure, each position would incur a cost of 0.08% x the USD 1,000 position size or 1 USD minimum – in this case the USD 1 minimum applies, since 0.08% x USD 1,000 = USD 0.8. In other words, the trading costs have dropped 90%, totalling a mere USD 10 or 0.1% of the account value.

Now let’s also say that over an average year this same investor has a 50% turnover rate in positions (5 positions sold and a new 5 positions acquired). Under the old cost structure that would have meant an additional +1.0% of the account value in commission costs (USD 100 for 5 round trip trades, or 10 x USD 10).

Overall, with these assumptions of twenty total trades (see table below), our investor would have spent 2.0% of the account together with the cost of establishing the initial positions, assuming no increase value of the underlying positions. That 2.0% is a very significant chunk, over a quarter, in fact, of the average yearly return on the S&P 500 Index over the last 20 years of 7.5% (not including returns associated with dividends). Under the new pricing structure, the commissions would add up to only 0.2% of the account, less than 3% of the average return of the S&P 500.

Note: all examples in this article and in the table below only include trading costs and no currency conversion costs.

Saving even more (in percent) with regular position “top-ups”

If we make further assumptions that this same investor wants to increase the size of five of the existing investment positions by USD 250 each during the year, the old commissions associated with this USD 1,250 increase to the account size would have incurred another USD 50 in commission costs (5 new positions at USD 10 each), a 4.0% commission cost relative to the size of the added funds. Under the new costs, the USD 1,250 positions would incur a fee of only USD 1 each, or USD 5 in total, or only 0.4% of the added funds. The smaller the position added, the more the new pricing impacts returns.

The examples above are based on prices available for Saxo’s UK clients. The old trading costs before pricing changes may vary in other jurisdictions. Saxo clients trade according to classic, platinum or VIP pricing structures.


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)

40 Bank Street, 26th floor
E14 5DA
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992