Quote from Wallace:
Jack_Larkin: speculative trading isn't about costs, it's about profits
if I ran a retail business selling some products, the only way I could increase profits
besides greater discounts from product suppliers and more customers, is to lower
costs of how I run the business - no employees, store open 12 hours or more a day
6 or 7 days a week, 2 hours for picking up supplies from wholesalers, stocking shelves
and cleaning the store, no heat in the store, bring your own bag, minimum lighting etc
I trade the 6E where the margin is $500 and rt commission is $5.94 vs $3,141.20 and
$15 for spot - IF the spread is at the minimum at the time the trade's entered, but . . .
"Tricia: Thank you for choosing OANDA. How may I help you?
Wallace: hi, if the spread is 1.2 pips when I enter a trade but 10 pips when I exit the
trade, is the spread cost 1.2 or 10 pips ?
Tricia: The spreads is the difference between the bid and ask prices.
Tricia: If you exit the trade when the spreads is 10, it means you are getting the less
competitive prices.
Wallace: so you're saying I'd be charged 10 pips for the trade when I closed it not 1.2 ?
Tricia: Yes."
lower 'costs' for me would be to trade the ES at $400 and $3.95
personally, because of the timezone I live in I don't need extra margin to hold thru the
week since I can exit a trade prior to the 2pm closing and re-enter the trade after 3pm
which may or may not result in an additional increase/reduction of profits while swing
trading. and as already stated, Limit Order means no extra B/A spread 'cost'
It wouldn't be 10 just because you closed it when the spread was 10, it would be a net aggregate between the two spreads on your open and close orders.
When you "pay the spread" in spot or futures, it comes out of your P/L of that trade if you use limits or not. The only exception in futures is if you capture it by having someone else pay the spread and hit your order and after the market does not tick past where your order was after all (meaning you literally got high / low tick and were lucky to get the fill before others.) It's not a hard cost listed on your transaction report, but an extra distance price has to move between when you open and close your order.
Poor Tricia, gettin picked on by big old Wallace
haha..
Sigh, you relapsed on the spread/cost thing again.. and here I thought we made progress. ;P
Quote from Wallace:
at the end of the fiscal year when I file a tax return, if I've got taxable capital gains then
higher 'costs' are beneficial to me since they are a non taxable deduction which reduces
the amount of capital gains to be taxed, and increases my net profits
if I think my trading profits are going to be higher this year, I'll lease a chart/data feed
and if higher still, I'll lease a CQG plus Bloomberg system so those 'costs' will lower the
amount of profits that are taxed, but thereby increase my net profits
THE bottom line when speculative trading is profits, NOT costs
I don't care if it 'costs' me 50 pips to enter the trade if my PROFIT is 100 pips after I exit
the trade - at of course a fixed rt commission
Ok, if we are gonna start talking about taxes and accounting then 'total cost' changes a bit. That's a whole different set of terms, and very subjective since it's based on your local tax codes.
One thing you said though doesn't sit right. I'm not sure how things are where you live, but when I file my taxes for business income any additional cost of business reduces my tax bill, but also reduces my net profit in the process. So yes, you end up playing less taxes when your total costs rise (again "costs" from the accounting and tax view since we switched context in your last post) but you also take home less net profit as well.
You do not increase your net profit by accounting for more costs as you put it. That doesn't make sense at all.
What good is net profit if you spend it needlessly? I'd rather keep after tax dollars (being a percentage of the net profit) than spend that profit on artificial costs that aren't required (in which case I get the item it buys, but not the dollars.)
It does make sense to do this when you can write off things you would buy anyway and actually need, like a new trading computer... since buying it with after tax dollars would be silly if you can manage to write it off for business use.
HOWEVER buying a bloomberg terminal (as in your example simply because you are making a decent profit in a given year in order to reduce your taxable net income (that's the key, not because you need a bloomberg terminal, but because you don't want to pay a fraction of the bloomberg terminal cash value (cost) to the tax man if you kept it as net profit) seems insane to me. Why would you ever just blow away cash on things you wouldn't otherwise need? Sure the tax man doesn't get his hands on some percentage of your net revenue, but your cut would have been higher if you just kept the dollars yourself.
Like, maybe I missed something here...and if so, please explain, because last I checked you had to have revenue in order to write off expenses against said revenue, so any additional costs written down reduces your net profit overall no matter how you slice it.
If you think that a "cost" is taken right out of your actual tax owing, then I'm afraid you might be doing your taxes wrong... or do please let me know if where you live the tax codes are actually as such (because I'm moving there if that's the case.)
