Commissions Part One:
Okay, let’s talk a little bit about commissions. Why do commissions matter so much? Well, first of all, they mainly matter if you’re an active trader. If you do swing trading they’re less important but if you’re trading every day, multiple times a day the commission are very important. The first thing you want to think about is do you want to trade by ticket or do you want to trade by share. If you trade by ticket you’re paying a certain fee, say five dollars, seven dollars something like that for as many shares as you want to trade up to probably about 5000. So, if you’re doing a fixed rate at half a cent per share, that would be about five dollars if you did a thousand shares. So, that would basically work out to the same as paying 5 dollars per ticket if your average trade was a thousand shares.
But let’s say that your average trade is less than a thousand shares. In that case, the per share fixed rate would be a better deal for you than the ticket rate. If your average trade is more than a thousand shares and you’re getting the same quality execution, the ticket charge would be a better way for you to go. If you did it by paying a lower per share rate and paying the fees, if you’re trading less than about a quarter of a million shares a month it’s going to work out to about the same.
In another blog post I’ll going into adding and removing liquidity which can change the figures if you’re going to break it down to a per share rate and you’re going to go on to a tiered structure not a fixed rate per share, but we won’t go into that just yet. In any event, the bottom line is that no matter how you cut it, if you’re an active trader and you’re trading any reasonable size you’re going to be paying a lot in commissions. So, what the commission charge is and the structure that you choose to pay commission in and the quality of your execution are all extremely important.