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I don't understand how stocks work but I'm hoping someone can explain it to me given my short example here.

So on Monday, I purchased 2 stocks priced at $2.50 each, using an app on iOS called Robinhood. It advertises itself as the first free stock exchange, so I took it at its word. On Tuesday, I sold those stocks for $2.48 each. So you would think that I would only lose 4 cents correct? No. I lost 6 cents. Why? I thought stocks were just simple math. Buy low, sell high (obviously not in this case), but why does 2x2=6 in the stock market?

blahdiblah
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hack3rfx
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    What were your fees to buy and your fees to sell? – Grade 'Eh' Bacon Oct 05 '17 at 14:06
  • @Grade'Eh'Bacon Well, I'm using an app on iOS called Robinhood. It advertises itself as the first free stock exchange, so I took it at it's word. – hack3rfx Oct 05 '17 at 14:07
  • Transaction fees? rounding? We'd need more details to be certain. – D Stanley Oct 05 '17 at 14:07
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    Was it a market order or limit order? Did you actually sell for $2.48? If it was a market order, the best bid may have been at $2.47 even if the last trade was at $2.48 – PGnome Oct 05 '17 at 14:09
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    There's not enough information here to answer the question. If you actually bought two stocks at 2.50 each and sold them at 2.48 each and there were no trading fees, you lost 0.04. So clearly one of those statements is inaccurate. – ChrisInEdmonton Oct 05 '17 at 14:10
  • I appreciate all the responses. As you can tell I literally know nothing about stocks: transaction fees, rounding, etc. I'm ignorant to all standard practices and procedures. – hack3rfx Oct 05 '17 at 14:15
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    Be aware that there are types of leveraged options, where you can loose more money than you invested, so be careful in buying things you know nothing about. Better do some reading – Christian Oct 05 '17 at 17:15
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    You should have bought low and sold high. Doing it the other way around is how you lose money!

    /s

     – Bryan Boettcher Oct 05 '17 at 21:25
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    Did anyone else see "Lost 1.5X" and immediately think, "what did you do, short Tesla or something?" :P – Mason Wheeler Oct 06 '17 at 00:18
  • There is no single "price" of a stock. There is the price at which you can buy it (the "ask") and the price at which you can sell it (the "bid"). They are not the same. The buy price is higher. The extra cents likely represent you selling at the low price and buying at the other. – farnsy Oct 06 '17 at 14:34
  • Did it say $2.48 in the sell confirmation or in the transaction confirmation? I've found that the price differs between the two sometimes in the order of 10-15 cents (without real market value change during the transaction) – Alvaro Montoro Oct 07 '17 at 08:18
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    Given your username, this is pertinent and important for you to read: https://xkcd.com/1570/ – Shadur-don't-feed-the-AI Oct 07 '17 at 14:14

2 Answers2

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Free, huh?

From their Commission and Fee Schedule:

SEC FEES

So if you literally bought two shares, then the SEC added one penny in fees and FINRA added one penny as a "Trading Activity Fee"

Note that there are several other fees on their schedule that may not apply to you.

If you had bought 100 shares instead, your total fees would have still been only 2 cents, but you would have lost $4 on the trade. So the fees are minuscule when you start doing larger orders.

However, That should not discourage you from experimenting and learning. I'd rather pay 2 cents in fees on a 4 cent loss than 2 cents in fees on a $400 loss. Just chalk it up to the cost of experience.

D Stanley
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    Thanks, I had no idea this was a thing. I guess it's "near" to free, but still not free. I just wanted to try stocks out and see how they worked, I wasn't out to make money. Good to know there are fees involved. – hack3rfx Oct 05 '17 at 14:16
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    @hack3rfx Most brokers probably just lump it into their normal non-zero fees and it goes unnoticed. – D Stanley Oct 05 '17 at 14:44
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    @DStanley that is exactly what they do. Most brokers have a target audience and know what kinds of stocks they buy and sell, and make a commission structure that covers all the fees 99% of the time. – CQM Oct 05 '17 at 15:09
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    @hack3rfx No one is going to give away for free what is essentially a cost to them. One piece of advice more for you - refrain from shorting stocks and selling options. Stick to a long position on stocks and buying of options. If you want to profit from a falling share, don't sell calls, rather, buy puts :) – cst1992 Oct 05 '17 at 18:15
  • @cst1992 Well, there may be zero marginal cost for a cash user-exceuted trade through their app. The only fees in that case are mandated trading fees, so the two cents is not profit for the company. – D Stanley Oct 05 '17 at 18:28
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    @DStanley That's what I'm saying too. The brokerage firm is not going to bear the 2 cent cost, they'll pass it on to the client. – cst1992 Oct 05 '17 at 18:41
  • @hack3rfx You should have received a trade confirmation that showed the fees. Or does this app not send confirmations? – Barmar Oct 05 '17 at 21:51
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    It is THE APP that is free. Not the use of said app. – Mindwin Remember Monica Oct 06 '17 at 13:43
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    @Mindwin Well the app does provide commission free trades under certain conditions. – D Stanley Oct 06 '17 at 13:56
  • I haven't read their terms in depth. But the business model of trading apps might be too borderline for this format. :D – Mindwin Remember Monica Oct 06 '17 at 14:42
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There is a misunderstanding somewhere that your question didn't illuminate. You should have lost $0.04 as you say. Assuming the prices are correct the missing $0.02 aren't covered by a reasonable interpretations of the Robinhood fees schedule.

For US-listed stocks: $0 plus SEC fees: 0.00221% of principal ($22.10 per $1,000,000 of principal) plus Trading Activity Fee: $0.000119/share rounded to nearest penny plus short/long term capital gains taxes

The total fee rate is 0.002329% or 0.00002329*the price of the trade. With you trades totaling around $11, the fee would be ~0.000256 or ~1/40 of a penny.

The answer is probably that they charge $0.01 for any fraction of a penny. It's difficult to explain as anything other than avarice, so I won't try.

Noah Tsaying
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