By nature, traders and investors are always looking for a profit. But they’ll also be the first ones to tell you that trading is expensive. From commissions to service fees to taxes, the costs of making a single trade can sometimes make it all the more difficult to reach that elusive profit. You have to take all of those costs into consideration when making any trade.
But there are ways that traders can reduce the amount of money spent making trades to focus more on the profits that will come as a result. We asked some of our best-selling authors and experts here at Traders’ Library to get their input and personal advice to help you save money every day.
We asked 30-year market veteran and founder of NationalFutures.com John Person for his advice on how all traders can save money and maximize profits when trading. His tip is simple: gauge better entries and exits. If you pinpoint better prices on entries and exits, you are more likely to continuously save money over time. How does Person suggest you go about doing this? His own Person’s Pivots are key tools to use that come with only a few initial simple rules. “If we have a bullish conditional target, I like to enter long positions at the projected support targets. This helps me to pinpoint better pricing on my entries,” says Person. Person’s Pivots allow you to achieve these goals and ensure that you save money in the long-term.
If gauging better entry and exits isn’t enough for you, we asked Jean Folger, co-founder of PowerZone Trading and author of Make Money Trading: How to Build a Winning Trading Business, to share her advice to get perspective from yet another industry expert. She has two critical pieces of advice for traders at home looking to cut out unnecessary spending.
1. Streamline data feeds. Over time, data fees add up to end up costing much more than expected. If you make sure to only pay for data that you need, eventually you will save plenty of capital.
2. Taxes. Taxes can greatly affect a trader’s bottom line, but if you hire a qualified tax specialist you can find strategic ways to reduce money spent on needless taxes.
Finally we asked Jea Yu, co-founder of UndergroundTrader.com and author of the best-selling book Trading Full Circle, if he had any recommendations for traders looking to save money. His target area: commissions. According to Yu, commissions are the real key to savings. You should define your average monthly volume (shares sold and bought). If this total is over 75,000 shares, then consider a direct access broker with per share pricing, but don’t pay more than .006 per share. Yu recommends using Cobratrading.com, as they waive the platform fees (which are $125 per month) above 75,000 shares. To give you a solid example to understand how this formula works, Yu detailed it for us:
ECN rebates are giving when providing liquidity. ARCA and ISLD both offer .002/share rebate if you sell your longs on the inside ask price, or buy your longs on the inside bid price. By selling into buyers or buying into sellers, you get the rebates to off-set the commissions. For example, you buy 1000 shares of XXX through a market maker, it will cost you $6 (.0006/share). If you sell 1000 shares of XXX at a limit price on the ask through ARCA, your cost is $6 minus $2 (.002/share rebate) for $4 commission. This adds up tremendously when you factor in the shares. 75,000 shares a month with a rebate of .002/share on 1/3rd or 25,000 shares = $50 savings.
Don’t forget that there are many free news and information services that can provide you with the knowledge to save money and in turn, earn bigger gains. Some of Yu’s personal favorites include:
- Yahoo finance – stock specific quotes, news, and options quotes
- Finviz.com – stock scanners, heat maps, trading ideas
- SeekingAlpha.com – trading ideas and commentary
- CNBC ticker for stock trading ideas
- And of course, TradersLibrary.com - trading books, ideas, webinars, etc.
Losses can occur at every stage of making trades, not just at exit points. Limiting these losses and reducing the amount you spend can add up over time to greatly increase your capital. From John Person’s tips on gauging better entry and exit points, Jean Folger’s ideas on reducing frivolous taxes, and Jea Yu’s formula for profitable commissions, there is always something to be learned from market experts helping you save money where you can.
What are some of your personal trading strategies that help you save money every day?