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What is a Net Transction?

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  • Written By: Mary McMahon
  • Edited By: Kristen Osborne
  • Last Modified Date: 31 October 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
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A net transaction is an exchange of currency for something of value that is not accompanied with fees. The stated amount of the transaction reflects the total money that changes hands and when a proposed transaction is quoted as a net transaction, it means that there are no additional fees to drive up the total. In such transactions, the quoted amount reflects the total amount, with no hidden costs. Since fees can sometimes add significantly to the total paid or due, this distinction can be important.

This term is most commonly used in reference to securities. A report or analysis may indicate that prices are quoted as net transactions to alert readers. Initial public offerings and new issues of securities are often quoted in this format. Brokers of such securities make money not on fees and commissions, but on the difference between the discounted price they paid and the price they get when they sell the security. Offering new securities as a net transaction is also designed to pique investor interest and ensure brisk trading.

Commissions and other fees associated with a securities transaction can drive up the total cost. Investments do not go as far when investors are also paying fees for each transaction and this must be factored in when considering new purchases and evaluating financial reports. When a security's value is quoted as a net transaction, it is easy to see how many shares can be purchased for a given amount of money.

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In public disclosures by governments and publicly traded companies, statements provide information about the nature of the transactions under discussion. These statements ensure that people reading the disclosures understand what kind of transactions were involved. When no clarification about the nature of the transactions is made, the information can be misleading in nature as readers may make erroneous assumptions about the information in the disclosure. Thinking that transactions were net transactions when they were not, for instance, can lead to misunderstanding.

When securities prices are quoted and there is no indication about whether or not they are net transactions, it is advisable to ask or to refer to the general guide that accompanies a publication or list of quotes. Magazines that cover securities, for example, usually have a note about the language they use and they adhere to a style guide when providing information. Understanding the conventions followed by a publication will facilitate easy reading and processing of the information provided by the publication's writers.

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