Commission Management (small-size)

[Bierzar 2]

Hello everyone,

 

I have a question about commissions trading with a small account. Let's have an example:

I trade with a 5000$ account and my daily target is set at 1% which equals 50 bucks. I am trading small size to lower my risk and my trading goes well. I take two trades that day and both are green.

Doing as i have learned i take profit of the board - let's say three times per trade. So now i am sitting at eight tickets if i am correct. Paying commissions and ECN fees i might actually be red at the end of the day although i think my execution was fine.

I am wondering what proper management looks like in this case. Do i aim to take profit just once before getting out to lower my overall tickets? Do i take more shares to compensate commissions? Do i hold positions longer and hope for a higher target as planned?

Since i am still at my very first touches there might be a fault in my reasoning.

 

Kevin.

[Carlos M. 230]

Hi Kevin,

Hope all is well! This scenario you are describing is a big challenge for many traders trading small accounts. This is my advice and opinion to this situation.

For me most important thing is that the trading process and execution stays intact. If you are trading well and taking profits as you should and your Gross P&L is green that's a win.  You should not change your trading style or execution to try and save on commissions as that can have a negative impact on your trading. 

1. You start taking bigger share size to make up for commissions. You are not risking more and that can have a negative impact on your account's bottom line when trades go against you. Wait until you are more confidence and consistently profitable to start increasing size. Let the progress of your trading determine when you increase your size not the fact that you want to save on commissions. 
2. Change the way you think about commissions. Think of commissions as a fee you pay monthly to be able to learn how to day trade and gain experience in a live account, not as a fee that is taking away from your profit and great trading. Focus on your gross P&L instead of your net P&L, this is very important with small accounts. As you grow your account the commissions stays the same but your P&L starts to cover commissions.
3. Continue to trade your plan and keep the same execution process that is working, you want to build great habits from now that will be beneficial as your account grows. For example if you let winners run longer thinking about covering commissions you can get in a situation were the stock might pullback on you due to not following your plan. You do not want to think about commissions while trading as it can change your judgement about the trade possibility creating bad decisions. There are some options that will help compliment your trading style for small accounts without changing your entire trading technique. If you are scaling out continue to do so but maybe this time you take 30% off instead of 25% and scale out less.

As you get better in your trading and the account grows these issues with commissions will not be a thought at all. Focus on the process the P&L will follow. 

Carlos

 

[Bierzar 2]

Hi Carlos,

thanks for taking your time and sharing your advice and opinion.

Thinking about commissions as a monthly fee to learn how to daytrade seems very reasonable. In SIM it is rather simple not to care about commissions at all, but i can imagine that many people become very frustrated going live and change their trading style because of it.

Hopefully me and other traders with the same question will remember that when we go live.

 

Kevin