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wayneb

Are commissions a deal breaker?

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So I'm gearing up to go live in a few weeks and looking into brokers. (Now I know why they are called Brokers.) After analyzing my current trading style it looks like commission + fees will be around $50.00 a day! Now if all your trades go well and you are up $500 bucks that seems doable but if you have a bad day and lets say you break even your still out $50.00 in commissions! If your down a couple hundred tack on another -50.00. I don't hear a lot of talk about commissions but it seems like they could become a deal breaker for day trading. I heard Andrew mention in chat the other day he would have about $500 in commissions for the day. Am I missing something? $1000 a month for a new trader seems out of line. Any input would be appreciated. Thanks

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Posted (edited)

when you start, you need to learn in SIM which is comission free.

then live you should do 1-5 trades daily maximum.

If comissions is your concern you just keep away from positions over 500. you need to keep it small anyway for the start which would be $50 as you said. Which is basically good as it motivates you to trade less and better.

I wish i have not spent the thousands on comissions last year but i also realize that i had like 400 chances to make the trades better and earn so much that comissions would not be my trouble.

That is just my view on comissions. It does not bother me. Or at least not my biggest concern and i think it should not be yours because believe me, the biggest danger to your account size is you and your own psychology and discipline, not comissions.

If you start to think about optimizing comissions then you can think the same on taxes, buying useless stuff in your household etc. So it really depends on everyones personality. At the end the amount you smend on comissions is in your very own hands.

Anyway after few months of trading you can ask your broker to get you a different comissions plan so they give you discount.

 

 

Edited by peterB

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Thanks Peter, I was thinking the same thing last night. I need to make my trades count. I am now 8 weeks in sim and taking about 30 trades a day many at break even or  + a few bucks. If your making $400+ a day you won't mind paying $50 in commissions but at break even or red for the day $50 bucks will hurt.

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@wayneb 30 trades a day is way too much unless you are hyper-scalping for 0.02 moves.

I consider a day with over 5-6 trades high. 10+ is definitely over trading. 15+ is Hulk territory.

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Posted (edited)

yes 30 trades a day is not trading but gambling or playing. I understand that you want to learn as much as possible in the SIM but that does not mean you need to try this and that 30 times a day because it will grow unhealthy routines in you. So better stick to 3-10 trades max a day and focus on the quality of the setup. You should have been there after 8 weeks of SIM anyway!

Edited by peterB

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Maybe were comparing apples and oranges. Today I traded only 4 stocks and ended up with 45 trades. This includes buying and selling. I like to average in and partial out. I traded a total of 8,020 shares 4,010 in and 4,010 out. It did not seem like over trading, very slow and boring at times. My profit target is usually .30 cents a trade. I ended up +$440.73 for the day with a $3.92 loose. I figure commissions would be about $35.00 based off of the Account Report in Das. Does anyone know if you put in a limit order and cancel it does that count as a trade? I do mostly limit orders.  Does this sound excessive? Should I not partial in and out so much? Thanks guys.

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OK, so now I'm really confused. Just started filling out my application with IB. In the disclaimers it says this "Day trading will generate substantial commissions, even if the per trade cost is low. Day trading involves aggressive trading, and generally you will pay commission on each trade. The total daily commissions that you pay on your trades will add to your losses or significantly reduce your earnings. For instance, assuming that a trade costs $16 and an average of 29 transactions are conducted per day, an investor would need to generate an annual profit of $111,360 just to cover commission expenses."

Does everyone  make $200,000 a year day trading?

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That is such an oddly specific example in the IB legal warning.  There are lots of ways to not generate $464 per day in commissions. 

Going back to your original question about commissions being a deal breaker.  I think they can really hurt you if you don't pay attention to them.  If you are trading small size, IB commissions in either flat or tiered structure are quite reasonable.  I also don't trade a lot of low dollar stocks to keep commission under control.  As you size up, they really should just be a similar percentage of your trading volume and might go down as a percentage of your volume because you can get better pricing.

My guess on your commissions from your example above would be closer to a total $60 in commissions, ECN fees, clearing fees, and FINRA.  I think Norm in chat actually had a basic formula to get you close.  Also, some of those fees go away if you add liquidity but I am not an expert on that.  Lastly, I trade with IB and am not charged for cancels.

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Thanks Brian, that is around the number I come up with. I do almost all limit orders so ECN fees should not be as bad as commissions. In my example it was a tough day so this is probably the extreme. Some days I'm sure I'll only have 10 or 20 tickets. I'll also tweak my style a little and slow down on the doubling down and scaling out. Although I do like adding to a position because it limits my risk if a trade goes the wrong way. Once I realize my strategy is sound and working I'll add to my position in two or three stages. It also gives you a better entry point. If I go heavy right away and the trade has a big pullback It's hard to ride it out with big losses. I tried talking to IB but they would not give me pricing. They just refer you to the web page that is clear as mud. Now I know why 90+% of day traders fail! The commissions and fees eat you up! I guess I just found out one of the dirty little secrets of day trading. 

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15 hours ago, wayneb said:

No you have not. The broker earns whatever you do, it is no secret neither are the fees. But you just seem to overtrade while defending it with your personal style. You should be more efficient in trading if comissions are your concern. That is what Andrews books and also he personally tries to teach you all the time.

untill you generate satisfactory profit it is ok.

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Did you try Degiro. Apparently they offer one of the cheapest fee structure in EU, as discussed in forums. Also has good ratings in EU. In their website the fee is mentioned as Eur 0.50 + $ .004 from their website, not sure how this applies. I have sent them an email.

Also are you signing up with Interactive Brokers UK or USA. They seem to be different affliations (IB UK vs IB LLC), not sure if it makes any difference ( in terms of currency management, Routing etc.,)

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