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Hey Scott
Gotta agree with you on how critical transaction costs are to successful
DAYTRADING. I have been daytrading for about 2 months, and am finding
that even though my gross p/l is positive, when commission is taken into
account the business becomes marginal.
A while ago, it was mentioned here that the 90%losers/10%winners rule
came about from some study at a brokerage house. In it they mentioned
that although gross of transaction costs the accounts made money, after
adding in commission, the profits were swamped and most (90%) LOST
MONEY.
In daytrading, this is gonna apply even more - that's why I am trying to
get on the floor of an exchange where I pay a clearing fee of about $2,
and no commish c.f. a retail rate of $20-$30 a round turn.
I believe in the long run $20 commish is unsustainable for most people
trying to daytrade and pick the bones out of smaller price swings
intraday, assuming you are reasonably active. (And I haven't even
mentioned slippage yet . . .)
>From where I am standing, the only group getting rich from daytrading
are the brokers.
If you want to daytrade for a living and to give yourself the best
chance of success then you must,
GET YOUR TRANSACTION COSTS AS LOW AS YOU POSSIBLY CAN . . .
(Alternatively, ask yourself at what commission rate would your
daytrading business stop becoming marginal. If you cannot get such a
low commission rate from your broker then don't daytrade!)
Penny-wise (hopefully pound-wise too ;-) Pete
Scott Hoffman wrote:
>
> When I daytraded the NYFE back in 1997, I found that although my strategy
> had a 25% edge (think 62.5% win, 1:1 payoff) *before slip/comm* after
> slip/comm it was a breakeven deal at best. And that's not counting datafeed
> / hardware costs. Articles like this never really give the true impression
> of just how difficult it is to consistantly make money daytrading. The
> transaction cost barrier is the killer. Maybe the barrier in the equities
> world has dropped so dramatically that it may actually be feasible. On the
> other hand, I posted an article from the WSJ a few months ago about Block
> Trading's (a daytrading outfit where you go to there office, use there
> equipment, pay them a fee) demise indicating *not one* of their clients made
> money. Be sure to be skeptical of casual statements of profitability.
> Anybody can say anything. And our human nature is that the more we *want*
> something to be true, the less objective - or should I say "the more
> foolish" - we become in judging truth from fraud.
>
> Scott Hoffman
> Issaquah, WA
>
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