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Very helpful reply Andrew, thank you.
Couple of observations: I've found that Interactive Brokers has an
ultra-low commission schedule -- and it makes a substantial difference
if one is trading a smaller size (under $200k) account. Of course, if
you are a big block trader, then MB Trading's fixed price plan would
work better. Also, for EOD traders, some brokerages allow you to
specify the hours during which your order is active -- and so early
morning gaps and wider b/a can be avoided if you specify 10am to 1pm.
--- In equismetastock@xxxxxxxxxxxxxxx, "Andrew Tomlinson"
<andrew_tomlinson@xxxx> wrote:
> -----Original Message-----
> From: Andrew Tomlinson [mailto:andrew_tomlinson@x...]
> 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).....
>
>
>
>
>
>
> Yahoo! Groups Links
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