How much should I think about commission and liquidity costs?

[Handle123]

I wouldn't worry about it at all, commissions and the bid/ask are part of trading. Focus on profitable trades.

You should consider it, say you doing 15 trades a day, everyday, commissions at $4 a trade is $60 times 252 trading days is $15,120, and if you have $5k account, you have to do 300% plus to breakeven.

 

[lindq]

I wouldn't worry about it at all, commissions and the bid/ask are part of trading. Focus on profitable trades.

That's a ridiculous comment, especially coming from someone with a handle of OptionGuru.

 

[OptionGuru]

That's a ridiculous comment, especially coming from someone with a handle of OptionGuru.

OK ..... Worry about it. But that won't accomplish anything, you are still stuck with the commissions and bid/ask spread.

 

[Scataphagos]

I wouldn't day trade the Big S&P500 now, though I did in 80-90s when it was $500 a point,

Oh yeah, I'd forgotten about that. I traded it @ $500/pt too.... recalling when they cut it in half to $250/point.

 

[i am nobody]

You should consider it, say you doing 15 trades a day, everyday, commissions at $4 a trade is $60 times 252 trading days is $15,120, and if you have $5k account, you have to do 300% plus to breakeven.

That looks indeed horrible. But if you can make just 1 louzy tick per trade, you make $12.5 per trade. 15 trades a day and 252 days will make a profit of $47,250 before commission. Now it looks not horrible anymore at all. That's 945%.

 

[Handle123]

That looks indeed horrible. But if you can make just 1 louzy tick per trade, you make $12.5 per trade. 15 trades a day and 252 days will make a profit of $47,250 before commission. Now it looks not horrible anymore at all. That's 945%.

And that is why I tell all, after so many minutes, lock in a tick or make new target plus one tick, but seldom anyone says anything. It not 945% when you have to pay commissions first.

Starbuck time.

 

[Visaria]

Very important imho. Your absolute MINIMUM profit target should be 10x cost. Cost equals bid/offer plus commission.

 

[i am nobody]

It not 945% when you have to pay commissions first.

I agree, it is before commission. I compared with the 300%.

 

[qxr1011]

I know that I should take into consideration commission and liquidity costs (bid-ask spreads) when considering placing a trade, however I am not sure how much should I worry about those?

For commission I can pick broker with lower fees and try to negotiate better price, and for liquidity I can limit myself to trade only highly liquid options. Is there anything else here that I should worry about or do?

How do you estimate these costs and account for them when trading?

your costs at the beginning should be around 20-30% of your profits if u daytrade

with 5k deposit - forget about it

50k is a bare minimum imho

 

[i am nobody]

I know that I should take into consideration commission and liquidity costs (bid-ask spreads) when considering placing a trade, however I am not sure how much should I worry about those?

For commission I can pick broker with lower fees and try to negotiate better price, and for liquidity I can limit myself to trade only highly liquid options. Is there anything else here that I should worry about or do?

How do you estimate these costs and account for them when trading?

1. Build a system that you are going to trade.
2. Back test it.
3. Watch the stats: average profit/loss per Trade ; % of losing trades, max drawdown…

If you do all this you can answer yourself most of the questions. Nobody at ET can give you good advice because they have no clue about the way you trade or the stats of your system.
Depending of how good your stats are you can start with even less than 5K or maybe you need 100K.
Very good traders can start with less than 5K without any problem. But I clearly said very good traders.

Commissions you can find everywhere on internet. Datafeed too. Substract this from your profits and you know where the breakeven is. Take a safety margin as well.