Did you spend too much on trading stocks?
Posted by Frugal on January 18th, 2007
At the end of every year, I briefly review how I am doing with respect to stock commissions that I’m paying. Just simply making sure that I’m not being stupid, paying thousands of dollars to the online brokerage companies while burning a big hole in my pocket without getting returns on my stocks.
For the year 2006, my total commissions paid to brokerage house is 0.1% of the stock asset value on 12/31/06. I think it’s quite good, considering that almost 23% of that were due to buying Canadian stocks at Scottrade (cost $20 extra, besides the regular $7) and a couple of selling covered calls that I did. By the way, on the covered call that I did, it was in the money call so my stocks got called away. But boy, it got called away in 3 different pieces, resulting extra charges than I was expecting.
Obviously, 0.1% is still some amount of money. I could have bought several low-end digital cameras. My own target is NOT to exceed 0.5%, so in fact, I’m doing quite well in respect to my target.
So how much did you spend trading? Don’t burn a hole in your own pocket by over-trading. But don’t hinder your trading by the trading costs either.
In fact, I’m looking forward to some even lower cost trading platforms. When the trading is close to free, there is a distinct advantage that you can free yourself on limiting the number of transactions that you want to do, and therefore improve your trading somewhat (or so I believe). This is especially helpful when you want to phase into the market gradually, and/or trying to catch the top/bottom of the markets.
There are quite a few instances where I only have a limited amount of capital allocated for a certain stock/sector, and I would like to split my transactions into 2 or even 3 separate transactions because I was not so sure about the timing. However, because of the amount of capital that I’ve allocated, it wouldn’t make much sense to split the entire transaction into pieces.
Maybe I will try Zecco like ML at some point too. In fact, I’m waiting for Bank of America to offer their free online trading service in California in the spring of 2007.
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January 18th, 2007 at 6:49 am
Hey Frugal,
Great site you have here! If you are actively trading, you may want to consider Interactive Brokers. $1USD for us trades and $2 cad for Canadian trades. If you are from Canada, I have written a review on my blog of various discount brokerages:
http://www.milliondollarjourney.com/review-canadian-discount-brokerages.htm
All the best,
FT
January 18th, 2007 at 10:44 am
Bank of America is offering free online trading. I did not know that! Good info Frugal.
I guess by 2008, all banks will start the trend.
January 18th, 2007 at 1:29 pm
I have accounts with Bank of America. The “catch” with their free trading is that you have to park > $25,000 in a combination of checking and savings.
Good for those who can keep that in cash…for those of us who would like to keep a larger portion in the market, that’s a ‘deal breaker’.
January 18th, 2007 at 7:03 pm
Didn’t I mention IB or Interactive Brokers before? Maybe I forgot. They are very good & cheap, but not free.
Bank of America does require $25000 cash park at their bank. For my family, it will probably make my wife feel more secure than parking my $25K at an internet bank.
January 18th, 2007 at 8:48 pm
Commissions really eat into profits. Especially for daytraders who make tens of trades a day. I gave up daytrading for swing trading for that reason and now I am doing a lot better, especially with options combined with stocks. Today was good for puts, especially with volatility increasing. Options commissions are a little higher than stocks, but nothing like they were only 7 years ago!! http://lauristonletter.blogspot.com/
January 19th, 2007 at 8:03 am
There is actually another catch with Bank of America. They charge a semi-annual account maintenance fee, about $50 I think. The fee is waived if the account balance is over $50k.