Understanding Transaction Costs in Trading

Very Easy Trading & Rebalancing Transaction Costs

Consider the following scenario involving a portfolio manager:

The manager is evaluating the costs associated with selling a portion of a security position to maintain the asset allocation of a client's portfolio. Understanding transaction costs is crucial for making informed trading decisions. Transaction costs can include various elements such as commissions, bid-ask spreads, market impact, and opportunity costs.

Which of the following statements best describes a key component of transaction costs in trading?

Transaction costs only include the fees paid to brokers.

Transaction costs encompass both explicit costs like commissions and implicit costs such as market impact.

Transaction costs are solely based on the volume of trades executed.

Hint

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