Optimize Trading Strategy with Fixed Transaction Costs

Discussion in 'Trading' started by PeterW558, Mar 21, 2021.

  1. PeterW558

    PeterW558

    Hi All,

    I indend to invest a fixed portion of my monthly salary into my portfolio. However, I have to pay a fixed fee for every order I place regardless of the volume. Now I wonder whether I should place monthly, quarterly or yearly orders to maximize my return.

    I set up the following model for monthly trading
    Month 0: X€ invested, fee of Z€ paid.
    Month 1: return X€ * Y%, month 0 repeats.
    Month 2: return (2 * X + X * Y) * Y, month 0 repeats.
    ...

    Correspondingly the models for quarterly and yearly trading. Obviously, yearly trading will reduce my transaction costs but maximizes my "lost revenue" since the money is sitting in my bank and not generating any interest. If I account for this, my model reveals the optimal solution to invest instantly when the salary comes in. However, this sounds kinda unintuitive. Would you say its right? Have I forgotten any factors in my simple model?

    Needless to say that (X * Y) < Z

    Any help is appeciated. Thanks lads!