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"Beware of very low commissions....the FILL is the most
important part"
The age old argument by brokers who want to sell you a Saturn for the price
of a Lexus. A few years ago when commission rates in the stock market
started to fall, the standard rebuttal from those who had a vested interest
in seeing the status quo maintained, was "yeah, but you'd better watch out
for those fills from the discounts." The argument was compelling -- even
though you couldn't really verify it without a lot of work -- at first but
over the years has worn pretty thin lately. Arguments like this just fall
on deaf ears now as people realize that it doesn't really make a difference.
The same is true in futures with the trend in rates and quality of service
headed the same way.
Even if this argument were true, there are problems with it.
First, there's really no way for me to verify that I am in fact getting
consistently better fills from the more expensive broker than I would from
less expensive one. If I do pay more than I'd better make damn sure that I
am CONSISTENTLY getting bad fills because I sure as hell know that I'm
CONSISTENTLY paying more.
Second, slippage is slippage and you pay it when placing your order at the
market or at limit. You really have no control over this. But you do have
control over when you place your order and you don't need an expensive
broker to do this for you. Lots of good traders out there aren't giong to
quibble over a few ticks occasionally anyway.
Third, there's way more introducing brokers out there than there are brokers
on the floor (actually executing the trade). Odds are the expensive brokers
are using the same ones as the discount brokers in many cases.
Good brokers can justify a higher price but not for this reason. I'd pay
more for a broker that gave me good service (fill reports, email statements,
good complimentary analysis, defense when problems do arise, etc.) than I
would for a broker that simply promised me better fills.
All traders owe it to themselves to minimize commissions. If you are paying
more than $25-45/rt (which I consider to be high) make sure that you're
getting something more tangible than just a lick and promise from your
broker that their fills are superior.
Brian
-----Original Message-----
From: Franklin A. Cerrone [mailto:cerrone@xxxxxxxxxxx]
Sent: Friday, November 27, 1998 6:00 AM
To: HeyPeter; Scott Hoffman
Cc: omega-list@xxxxxxxxxx
Subject: RE: Daytrading article in WSJ
Beware of very low commissions....the FILL is the most
important part..............think of the difference in 2 or 3
ticks....
do the math...you'll see what I mean.
Frank
Frank Cerrone
cerrone@xxxxxxxxxxx
> -----Original Message-----
> From: HeyPeter [mailto:heypeter@xxxxxxxxxxxxxx]
> Sent: Wednesday, November 25, 1998 1:37 AM
> To: Scott Hoffman
> Cc: omega-list@xxxxxxxxxx
> Subject: Re: Daytrading article in WSJ
>
>
> 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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