Trade size

[Navarino]

Anyone offer any guidance on a recommeded limit with regard to the percentage movement needed to break even, when booking a trade. For example, a rule such as never trade if the quantity/price traded requires more than 2.5% gain to break even, i.e. to cover the spread and charges.

Cheers!

 

[Charlton]

It depends on the broker and the order

Anyone offer any guidance on a recommeded limit with regard to the percentage movement needed to break even, when booking a trade. For example, a rule such as never trade if the quantity/price traded requires more than 2.5% gain to break even, i.e. to cover the spread and charges.

Cheers!

Navarino

This really depends upon the instrument you are trading and your broker fees. You can break this down into types of costs:

Fixed costs to place yourself into a position to trade e.g. cost of pc, broadband cost, cost of software such as charting package, monthly cost of market data feed.

Some of these costs are ones that you are unlikely to factor in e.g. pc/broadband, because you might want those for other purposes. Others such as market data should be covered and clearly the more transactions you make the lower the cost element you need to recupe per transaction.

Leaving these aside, there are "semi-fixed" costs. These are flat rate fees for each transaction. For example, Interactive Brokers charges £6 per purchase/sale of UK shares minimum.

Then there are percentage costs e.g. stamp duty based on a percentage of the transaction value.

Furthermore some percentages/semi-fixed costs will vary according to the size of the order or the type of package the broker provides e.g. bundled/unbundled.

Lets look at an example from Interactive Brokers

UK stock fees (from their website)
Up to GBP 50,000 Trade Value

GBP 6.00 - commission

GBP 6.00 - minimum per order

GBP 6.00 - maximum per order

100 Shares @ GBP 50 Share Price
= GBP 6.00 - Example

> GBP 50,000 Trade Value

GBP 6.00+ 0.05% of incremental trade value>GBP 50,000 - commission

GBP 6.00 - minimum per order

GBP 29.00 - maximum per order

30,000 Shares @ GBP 2 Share Price - example
= GBP 11.00




Example

Lets take 100 shares at £10 per share: 1,000



Commision 2 x £6 12



Stamp duty 0.5% 5



Need to sell at: 1,017 = 1.7%



Lets take: 30,000 shares at £10 per share: 300,000



Commission 6.00 + 0.5% of incremental trade value above 50,000 = 106, but maximum £29 = 29 x 2 (buy and sell) = 58



Stamp duty 0.5% 1,500



Need to sell at 301,558= 0.51 %


So you see that the % reduces as the order size increases.

Now if I had chosen US stock the fees charged by IB are $ 0.005 per share up to a maximum of 0.2 % of the trade in their bundled package, so the profit percentage model is different.

Charlton

 

[Silent.Trader]

Anyone offer any guidance on a recommeded limit with regard to the percentage movement needed to break even, when booking a trade. For example, a rule such as never trade if the quantity/price traded requires more than 2.5% gain to break even, i.e. to cover the spread and charges.

Don't think that the percentage is really relevant. Obviously the lower the relative cost the better. But for a highly volatile issue it's much easier to move enough to cover costs compared to a low volatile issue. Also if your price target is a 50% move it will give a much better chance of recovering costs than when your target is only a few percent or less away. For option trading, 10-15% costs (spread & commision) is not very rare for me, but for bonds there's no way I'm going to enter a trade when costs are more than 1%.

grtnx
Wilco