This small and big account thing is just a numbers game. A $100 loss is still $100 if it happens in a 10k account or a 1mil account. Overtrading might seem like a big nono to you, but there are lots of people who take 10-20 trades per day, and this is by no means over trading. If at the end of the day, the trader manages to finish up a few ES points on 5-10 contracts, he can easily be making 1k per day. If $100 of that goes to commissions, which would be 10%, or even $200, which would be 20%, does it really matter? I've learned at ET that every single opinion shared is only valid for that particular individual and in their particular circumstance. On the flip side, there is someone doing the exact opposite of what is said, and doing it quite profitably. The problem is that people give blanket statements without all the necessary qualifiers. In this case, we first need to determine if the answer being given is from the point of view of a day trader, a swing trader, or an investor. Quick example. Someone states they averaged 20% per year for the past 5 years. Wow... seems incredible, right? On a 10 million dollar account, this sure would be good, but on a 20k account, not so much. Then you have the day trader, with 50k in their account. If they average about $500 profit per day, over 250 trading days, that is $125,000, which is 250% if you want to base it on their $50k account size. Wow! Clearly the 20% and the 250% numbers need qualifiers because both are valid numbers, but only in the right context. Same thing for this discussion about % commissions of gross PnL. It needs context. Anything over 2% might be a killer for you, but for some, 20% is perfectly reasonable and they are living a comfortable life.
I also think posts on this thread are mixing apples and oranges. Some are refering to % of PnL, some to % of account size. good topic though.
Agree on the proportion of capital. Do you calculate it on your 400k or say 2mm if you turn the account 5 times ? Thanks.
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On 400K. It's also interesting to look at the cost per unit of turnover on each instrument, since that is a key datapoint in determining how quickly you can trade. GAT
In my case I calculate everything in the R and it's multiples. No matter is it for example commissions, winning position or drawdown. I do not know others but my expectancy is quite stable number and I monitor it very carefully along with many other variables.
This is exactly the case. As I said earlier it is so much up to the system what percentage of commissions is ok and which not. If you have a working system then big commissions are not necessarily a problem. It often makes system inefficient but it does not mean it is not profitable. Of course it is better if you can push commissions low but in some cases there is no workaround. What comes to overtading the number of trades does not tell it to you. This is a larger topic which would need it's own thread to discuss so I leave it alone here. The question of this thread is quite good anyway but it is just an information (nice to know) unless you connect it to something (system) then you may learn something from it.
Wait....if both the small and large accounts are sending 2% on costs how did the small account get to 5k in costs ? What am I missing ? The example is about active traders with smaller accounts - it is not uncommon for the active traders to spend 40-50% or more of their capital in commissions. The active trader with the $10k acct is going to be a lot closer to 40% in trading costs than 2%.
The PnL above is before-tax(commission+tax) or after-tax? For a simple example, let us suppose PnL is gross 500K (after tax) for the last 20 or 30 years. Furthermore our expense (commission+tax) is also 500K (tax of 450K commission of 50K). / In short, expense rate is 50% (=500K/(500K+500K)) In this case, the answer for the original question is 10% (=50K/500K) / OR 5% (50K/1000K) since the PnL before tax is 1000K(=500K+500K)? PS) Furtheremore, should we add the supplemental expense like PC for exclusive trading and data fee? For example we are going to pay gross 20K for PCs for 40 years if we pay 2K for new fast PC every 4 years. PS2) In my personal guess, many traders spend 60 years(30 to 90) to pay expense between 500K and 1500K altogether. That is why most (roughly 90%) traders ends up with a loser. (Maybe BEFORE-expense winner might be roughly 50% due to zero-sum game) Final consistent winners are IRS (to Trump salary) and brokers from the cash of addicted suckers, isn't it? PS3) In short, do not trade too often, for concerning of expense.