Trading and commission

All traders have to pay commissions; there is no way around it.  But commissions will normally make up only a very small amount of your portfolio, so it normally isn’t too bad.

If you are seeing commissions take a large amount of your profit here are some tips to help you reduce their effect on your account.

1.       Shop Around

Not every broker has the best deal in town.  Some may charge $10 per trade some may charge $4.  That can make a huge difference especially if you are trying to profit from short term moves.

It is important to look for a broker who has low commissions on what you are trading.  Some brokers may have very low commissions on stocks, but very high commissions on options.  Others may have low commissions on options, but higher commissions on stocks.

So look for the commissions on what you will probably be trading.

2.       Trade longer time periods

If the commissions are affecting you in a negative way you can always trade longer time frames.  Longer time frames mean bigger moves, which mean commissions will affect you less.

3.       Include them into your risk to reward ratio

You are going to have to pay commissions if you trade stocks, so include them into your risk to reward ratio. 

For instance say you buy 100 shares of stock XYZ for $35.  You place a stop at $33 so your max loss is $200.  But if you have to pay a commission of $5 per transaction your max loss is $210. 

4.       Don’t worry Too Much

Commissions in general are pretty low as long as you have a discount broker.  They should not affect your account too much.  So don’t let them stop you from taking action and reaching your goals in the stock market.

For more on the stock market visit http://www.stocks-simplified.com