Commission rates, taxes and other fees

  • Commission: 0.25% of the gross trade value or 20 pesos whichever is higher
  • VAT: 12% of the commission
  • PSE Fee: 0.005% of the gross trade value
  • SCCP Charge: 0.01% of the gross trade value
  • Sales tax (sell only): 0.06% of gross trade value

Buy calculation

GROSS = BUY_PRICE * SHARES
TOTAL_CHARGES = COMMISSION + VAT + PSE_FEE + SCCP_CHARGE
TOTAL_COST = GROSS + TOTAL_CHARGES
    

Sell calculation

GROSS = SELL_PRICE * SHARES
TOTAL_CHARGES = COMMISSION + VAR + PSE_FEE + SCCP_CHARGE + SALES_TAX
TOTAL_AMOUNT = GROSS - TOTAL_CHARGES
    

VAR Calculation

The basic formula to get the VAR (value at risk) is:

VAR = PORTFOLIO_SIZE * RISK_RATE
    

If you have a portfolio of 100k and you are only willing to lose 1% of your total portfolio per trade, then your VAR is 1k.

1000 = 100000 * 0.01
    

However, if you are only willing to lose 0.5% per trade, then your VAR is 500.

500 = 100000 * 0.005
    

Position size calculation

Based on your VAR, entry price and cut loss price, we can calculate the number of shares you need to buy, assuming that you need to follow your VAR seriously. You can always add more shares later when you think you are already in a winning trade.

SHARES = VAR / (ENTRY_PRICE - CUT_LOSS_PRICE)
    

For example, you use 1% VAR, entry price is 2.16 and cut loss price is 2.12, then here is the number of shares you can buy.

VAR = PORTFOLIO_SIZE * RISK_RATE
VAR = 100000 * 0.01
VAR = 1000

SHARES = VAR / (ENTRY - CUT_LOSS)
SHARES = 1000 / (2.16 - 2.12)
SHARES = 1000 / 0.04
SHARES = 25000
    

Based on our basic calculation, you can buy 25k shares and your maximum loss should not be greater than 1k based on our VAR. However, is it really the case?

Here is your total buy cost: 54,159.30

GROSS = 2.16 * 25000
GROSS = 54000
COMMISSION = GROSS * 0.0025
COMMISSION = 135
VAT = COMMISSION * 0.12
VAT = 16.2
PSE_FEE = GROSS * 0.00005
PSE_FEE = 2.7
SCCP_CHARGE = GROSS * 0.0001
SCCP_CHARGE = 5.4
TOTAL_CHARGES = COMMISSION + VAT + PSE_FEE + SCCP_CHARGE
TOTAL_CHARGES = 159.3
TOTAL_COST = GROSS + TOTAL_CHARGES
TOTAL_COST = 54000 + 159.3
TOTAL_COST = 54159.3
    

And here is the amount you get back when you sell at cut loss price: 52,525.65

GROSS = 2.12 * 25000
GROSS = 53000
COMMISSION = GROSS * 0.0025
COMMISSION = 132.5
VAT = COMMISSION * 0.12
VAT = 15.9
PSE_FEE = GROSS * 0.00005
PSE_FEE = 2.65
SCCP_CHARGE = GROSS * 0.0001
SCCP_CHARGE = 5.3
SALES_TAX = GROSS * 0.006
SALES_TAX = 318
TOTAL_CHARGES = COMMISSION + VAT + PSE_FEE + SCCP_CHARGE + SALES_TAX
TOTAL_CHARGES = 474.35
NET_SALE = GROSS - TOTAL_CHARGES
NET_SALE = 53000 - 474.35
NET_SALE = 52525.65
    

If you deduct your sale price from the buy cost, you lost: -1,633.65 which is greater than your VAR which is only at 1k.

Position sizing with charges and other fees

Based on the calculations above, it is not enough to just use the basic formula to compute your position size where taxes, commissions and other fees can greatly affect the final profit/loss calculation. The simple trick though, is to compute the initial position size, then reduce it until the actual loss is near the specified VAR.

The new calculation uses a 50-peso buffer so that the actual loss can sometimes be slightly above the VAR but not that much. For example, if your VAR is 575.00, the calculation may result to have an actual loss of up to 600.00 which I think should still be acceptable.

Break-even calculation

Break-even calculation is done by adding fluctuation to the entry price until the sell profit is greater than ZERO, that is, including fees and commissions.