As a trader you are a sole entrepreneur. As every entrepreneur you have to manage fixed costs which are: room costs, electricity, water, hardware and software.
Of course you can ignore them, because you “work from home anyway”. However, as a trader you should know your costs exactly because they are simply there.
The most underestimated are the costs of the actual activity – trading!
Let’s list trading costs, as they are:
Your net income as trader is defined by these costs. Let’s talk about the most underestimated costs among beginners and trading enthusiasts:
Most underestimated because they can ravage your account. So, let’s assume you are trading 5 contracts a day and make 100 turn arounds a month. That means you are a disciplined trader and you makes 5 turn arounds a day.
This table shows the sum of opportunity costs for 1 year for 30-year treasury contract (ZB) and the Globex e-mini future (ES). By that if you are break even at the end of the trading year you have to cover expenditures listed above and your broker fees.
Now let’s assume you make 10 trades a day with 10 lots and each point is worth $50. Your commission costs are $2,50 per turn around.
Look now how the same calculation looks like if commisson costs doubles.
That means that if you even made better trades and less bad trades than I, because of your comission costs, we have nearly the same result.
Click here to see the CBOT exchange fees for non-members.
Click here to see the CME exchanges fees.
My trading philosophy is to quit after I am up in the money and I have reached my goal for the day. I am trying not to lose any money during this day. There might be good opportunities though but any additional tick or point I am going to make I am spending more in commission.
So, when looking for a broker look for one who is well known and well funded. Especialy if you are your own entrepreneur with no proprietary trading firm behind you, you need to get the lowest rates you can negotiate or you can get.
There are instruments and other trading possibilities which I can’t recommend because if choosen wrong they can destroy your account in a very short time. I’ll describe it in a separate post.
I look forward to reading your comments.