Trading commissions

JTrader

Guest
5,741 506
I feel that if I am ever to take my traidng to the next level, I need to start trading through Direct Access. Etrade Direct Access CFD's offer 0.2%-0.1% commissions. Although this doesn't sound much, 0.1% means that I have to make 0.8 points profit on a trade before I break even and cover my trading fees. 0.15% would mean 1.2 points, and 0.2% would mean 1.6 points profit needed to break even on a trade. This adds a considerable amount of pressure.

I have been in this game for around 1 year and so my knowledge beforehand is fairly limited with regard to trading fees. My theory woud be is that as the broker market place becomes ever more competitive services will continue to improve and commissions and trading terms will also improve. What do others think? Is this what is already happening?
by how much can things improve?
What could the situation be like in two-three years time?

All contributions welcomed,

Cheers.
 
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anley

Senior member
2,730 229
Commissions will always come down as the natural part of any business cycle however brokers rely a lot on the fact that the majority of their clients (retail) haven't a clue about commissions and the damage that they do. So in effect they'll still try and get as much as possible from those who are inexperienced.

This is why CFDs are the biggest con-game in the City today, and 75% of CFD traders haven't worked this out yet.
 

raf110

Member
63 1
Direct access is a bit different, Firstly the company has to fund the purchase of the underlying stock and also have to pay fees to the exchange to transact the trade. I think between 0.08% - 0.1%, will be the lowest they can go. Unless of course the borrow the stock but even this requires collateral.
 

Naz

Experienced member
1,391 24
Trade the Dow with no spread and $6 commission per 1000 shares traded,all on my level 2 direct access screen.With fantastic liquidity.I think thats a pretty good deal.
 

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TheBramble

Legendary member
8,395 1,171
JT - where are you getting the 2c from?

Naz - you also have to pay $100pm for the DAE platform don't you? Or perhaps you don't - is there a volume waive?
 

JTrader

Guest
5,741 506
Hi Naz

which broker/s offers $6 commissions per 1000 shares?
is this a leveraged product? if so, what % margin is required?

And does the $25000 US day traders rule apply?

Cheers.
 

Naz

Experienced member
1,391 24
The screen shot is just an example to show that the spread at times can be nothing.

Even when there is a small spread the DAE trader can buy on the bid, through an ECN and pay no spread.

The $6 per thousand shares traded is the brokers standard charge no matter how you get your fill.ie $12/round trip.

If you do enough trades in the month, negotiate with your broker and could find the DAE platform is free,otherwise yes it will cost you $100/month.

However take the spread better trading the Dow at £10 point and it costing him 5 points in and 5 points out.Thats £100/round trip.Do twenty round trips in a month and thats £2,000 in costs.

Take the DAE trader trading the Dow using the Diamonds shown above.If he captures the spread or hits the ask when the spread tightens, his costs would be 20 round trips ($12 /round trip) total cost $240,plus the platform fee of $100,total cost $340 or £188/month.

Therefore trading the Dow this way would save the DAE trader in this example £1812/month over the spread better trading the same instrument.

Directaccesselite.com offer this.You need $25,000 for an account and get 4/1 margin.The platform also allows you to trade Nasdaq stocks.
 

TheBramble

Legendary member
8,395 1,171
Naz - what do mean 'using the diamonds...'?
 

Naz

Experienced member
1,391 24
The Diamonds (code DIA ) are a Dow tracking stock.

In the example above the spread better would save $25,000 in trading costs in just under 8 months if he traded the Dow using the Diamonds on a direct access platform.

Its also easier to manage a position if you haven't got a large spread to clear first of all.
 

Trader333

Moderator
8,639 969
Naz,

Whilst I agree that it is far more cost effective to trade using DAE than it is to use a Spreadbetting company your cost comparison is not comparing like with like.

SB at £10 per point is the equivalent of trading at approx 1800 shares per trade and not 1000 because £10 = approx $18

So if you get charged $6 per 1000 then I presume it is 1.8 x $6 for 1800 which = $10.80 per side or $21.60 per round trip.

That means that for 20 round trips the difference is:

For the Spreadbettor = 20 x £100 = £2000 or ($3600)

For the DAE trader = 20 x $21.60 = $432 + $100 platform fee = $532 or (£295)

Saving = £1705 or $3070 which is still a huge saving.

A spreadbettor may also argue that they only pay the 5 points spread at entry and not at exit so not paying it twice which would change the calculations again to half the above but it is still a huge saving.

I dont use SB as you know and am very much pro the Direct Access approach.



Paul
 

donaldduke

Experienced member
1,665 257
I think you should assume at least one point spread in your
direct access calculations. This would reduce the
difference from £705 (assuming 1 way 5 point SB spread) to about £580 pounds.

Now lets say after that 20 trades you were up 1000 pounds
betting and up 1580 using direct access (because you paid
580 less in costs).

Lets assume a lower rate of tax of 21%, via the direct
access route your profits would be reduced to 1280 pounds
and to 1000 pounds if you are higher rate tax payer.

Not much difference.
So there are times when DA is better sometimes when SB is
better.

As a rule of thumb (assuming you have a profitable system) i would say:

Less than one trade a day, use SB.
1 trade a day, there isn't much difference eitherway.
More than one trade a day, use DA.

Also if the markets become more volatile this pushes things more
in favour of spread betting because the spread becomes
less noticeable.
 
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Trader333

Moderator
8,639 969
DD,

Also if the markets become more volatile this pushes things more
in favour of spread betting because the spread becomes
less noticeable

I have to disagree with this as it assumes you will always get the direction correct which is highly unlikely. In volatile markets you are far more likely to hit your stop.

Also why assume a 1 point spread when Naz has demonstrated that it is 0 or can effectively be negative by capturing the spread ?

I have compared the use of SB against direct access for intraday trading. My conclusions show that in volatile markets you will get filled immediately using DA and can often be waiting up to 30 seconds using SB or be switched to telephone only trading by which time the opportunity is gone or well into profit for the DA trader.

People always argue the tax case which I agree is very applicable for longer time frames but not intraday and I would rather pay tax on a profit than no tax on a loss.

That said it is each to their own and I am sure someone will demonstrate that they can make money consistently by intraday SB. However it doesnt suit me as my main concern in trading is prevention of capital loss which is much easier with DA than SB.



Paul
 

donaldduke

Experienced member
1,665 257
So you DA traders never buy on the offer? Or sell on the bid?

By volatile markets i meant for example
the stock market with a high VIX reading, not a choppy market
thats whipsaws you.
 
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