How much commission cost is too much?

If you're a day trader, how do you measure if you're paying too much in fees?

For instance if you make 20k of profit a year but you make 2-3 trades a day this can eat half the profits.

Is there a rule of thumb for how much is too much?

What about traders that do more than that, say 15-20 trades a day? I guess it's only worth while if you're making 100k of profits right?

J

 

Three round turns a day. $750 for brokerage fees and maintenance is about right.

 

If you're making 2-3 trades a day and you're giving up 10k, you need a better commission rate.

I think that a better approach would be to evaluate whether day trading is succeeding for you. If you're doing better than money market rates and your abilties are improving, just accept commissions as part of the cost of doing business and strive to do better.

 

You should evaluate not by the absolute amount but a percentage. e.g. $200 (commission) / $1000 (gross gain before commission) = 20%.

If you spend >30% of your gross gain on commission I think it's too much. You may be trading too hard for your money.

But a gain is a gain (better than losses) even if you pay 80% on your commission...

 

Go direct access. I use Cobra and pay/share. Hurts a little when you get up in the 10's of thousands share range but ECN rebates reduce cost and speed of execution on Insta Quote makes up for any difference in per/trade using discount broker.

 

You're not making 20k "profit" if you haven't accounted for commissions. Obviously you need to find the cheapest commissions accompanied by the best execution but commissions are a cost of doing business.