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-----Original Message-----
From: Andrew Tomlinson [mailto:andrew_tomlinson@xxxxxxxxxxx]
Sent: Tuesday, June 28, 2005 7:35 PM
To: 'equismetastock@xxxxxxxxxxxxxxx'
Subject: RE: [EquisMetaStock Group] Transaction costs versus trading profits
My experience is as follows:
- even small commissions add up if your turnover is high. So if your average
trade length is 5 days and you stay fully invested, you turn over your
portfolio 50 times. So 0.20% round-turn costs/slippage turns into a 10% pa
portfolio hit....
- slippage against model costs can be relatively significant, particularly
if you enter at the open (again, remember the turnover multiplier)
- short stock trade execution can be way worse than model (both uptick rule
and additional slippage)
- with a lot of trades, execution errors creep in. I don't know if I'm
particularly error-prone, but I'm willing to pay a little more in
commissions for an entry interface that will stop me from making a stupid
entry error than one that will just suck it up without telling me. And you
only have to lose that pesky order entry form a couple of times for it to
hurt, even with stops (I have learned to keep that glass of wine in the
evening until AFTER I've entered my orders..)
- slippage can come from strange places. For example, the consolidated tape
records opening prices from the first exchange to open, but your broker may
only execute in New York for an NYSE stock. You may get execution bang on
the NY open, but if the tape shows the opening price from a different
exchange you'll have deviation against the model.
Best
Andrew
-----Original Message-----
From: equismetastock@xxxxxxxxxxxxxxx [mailto:equismetastock@xxxxxxxxxxxxxxx]
On Behalf Of metastkuser
Sent: Tuesday, June 28, 2005 5:53 PM
To: equismetastock@xxxxxxxxxxxxxxx
Subject: [EquisMetaStock Group] Transaction costs versus trading profits
I can't recall exactly who (either LeBeau or Tharp) but one of them
commented that long term, most system's profits are not much greater than
their transaction costs.
I found this to be hard to believe. At first I thought it might be the case
for small accounts. But even for the small accounts, I don't believe this --
especially with brokerages like Interactive Brokers ($1 minimum
commissions).....
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