It's good to do this analysis, and good to think about how you can reduce your costs, but it's also meaningless to look just at the $ cost without knowing what your account size and risk or return target is. I can't be bothered to add this up, but your total $ cost looks like it's about $25,000 a year. Now that sounds like an awful lot of money to me, but you might have a $10 million trading account, in which case it isn't.
You may also want to include your market impact / slippage, as again this is a cost you will pay regardless of whether your trading is profitable or not.
Let me share my own figures and explain how I'd think about them:
Commissions £3,120 (almost entirely in futures)
Data £120
Net interest £600
Slippage £2,240
Total: £6,080
Even allowing for currency conversion you can see why I was horrified by your figures (and they don't even include slippage).
Now let's calculate those as a % of my notional account size (£400K):
Commissions 0.78%
Data 0.03%
Net interest 0.15%
Slippage:
Total: 1.52%
That is 1.52% I have to make every year before I become profitable. Your costs (around £20,000) would equate to 5% of my account. That sounds like an enormous amount.
Or to put it another way, I run my account at a target risk of 25% a year. So in risk units I have to make 1.52 / 25 = 0.061 Sharpe Ratio points a year before I pay my costs.
A fairly pessimistic guess at my long run Sharpe is 0.5 (equating to a return of 12.5% a year). So I'm giving up about 12% of my likely return in costs. If I was paying £20K a year in costs then I'd be giving up 40% of my returns in costs. That's ridiculously high.
That is the kind of units you should think about costs in.
This isn't what opportunity cost is.
Opportunity cost is the fact you really ought to charge yourself the money you could have earned if you weren't trading. You should also count the money you could have earned if you had invested (the opportunity cost of capital, with a commensurate level of risk as you have in your trading).
To take an example; an extremely successful day trader with a $100,000 stake might make an average of a 100% return a year, with a standard deviation of 20% - similar to the US equity market.
They also have to pay $20,000 in commissions, but that still leaves them with $80 grand.
However to get these returns they need to spend 10 hours a day shackled to a desk trading and researching for the next days open. If they weren't doing this they'd be holding down a white collar job with a $75,000 salary. I'll assume that the tax on trading and salary is the same but obviously you can factor that into your own calculations.
If they weren't trading then they could passively invest in the US stock market and earn an average of, I don't know let's be pessimistic, say 8% a year or $8,000. That is their opportunity cost of capital.
So their real return from trading is $100,000 -$20,000 - $8,000 - $75,000 = .... well it's negative. They would have been better off working for a living, and investing passively.
If I look at my own account (notional value £400K) then the opportunity cost of capital is around £32K. But because I trade in a fully systematic fashion I only spend an hour a week on it. Even if I assume I would spend that hour doing consultancy at my highest day rate that only comes out to £13K. So I really ought to be earning at least £45,000 a year to make it a worthwhile exercise.
GAT
