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“This video treasure look at taking into account. All the expenses in trading. The forgotten forgotten ones that we forget about stay tuned. Hey traders warm welcome to you so buffett and believed mentioned something about these frictional expenses.
These are little expenses that kind of come into a deal that you don t think about because you re wrapping up into the bigger picture. But they add up to a substantial amount of money over the long term and that applies in trading. We turn to think okay well i bought this at a hundred. I sold it a hundred twenty great there s my profit.
But no there are so many additional costs that may well be your profit. But you may well have had to pay costs throughout all of their which actually would result in a bigger profit. If you hadn t had to pay the cost now i get that you are using a facility. A broker this that yeah.
There s plenty of people in the chain that require getting paid for you to do the deal that you want to deal when trading. I get that but the point is they re not saying we should be trading for free these guys we re doing stuff for free of course not but i m just saying as a trader. We need to be aware of all of these when we re thinking about our trading setup and our trading strategy and our pacifically our strategy in terms of you know because some people say okay well i showed you scalping should i be doing long term trading. Really scalping shouldn t be on your list at all unless for some real reason.
You ve got a great feel for it. And it s something that works well for you because those frictional expenses. All of a sudden add up to a massive percentage of the trade deal. But let s look at them.
And let s discuss that in a second all right so. The first one is obviously the spreads you need to use a broker that has a tight spread now if we re talking about fx. And we re talking about spread payment. Let s see if these that s gonna be the deal you do with the broker.
It s going to be the broker that you select. It s the size of the spreads if you re trading direct in the exchange for trading stocks trading futures you want to trade in something with a spread is reasonably narrow now this is an offset to be had there if your trading strategy applies better to less liquid instruments of course. You got to pay a bigger spread then perhaps you need to consider working waters on the bid on the offer hitting the mid that kind of stuff rather than just using market orders that will reduce that spread for you similarly. If you re trading fx.
Even though you can t specifically let s trade training against look. At the broker or spread betting company or cfd. Company or spot whatever. It may be you can t of course go in the older book and join the order book in the interbank market.
But you can still use a limit and you ll be surprised how many times you ll be hit on your limit..
The end of the day. When you use a market order you re basically saying you don t expect that freight to take any heat whatsoever before it hits your target. That s really what you re saying and in reality. That s not the case so consider or perhaps go back and look.
And say well if i d use the limit order and just a limit order up the bid even all right so let s say we ve got a spread of 52 to 53. Whatever that may be whatever currency pair rather than taking it 53 put in a limit of 52. How many times would you have got filled on that for all your trade my guess is probably a high percentage and it would have negative negative ly affected your returns and would have positively affected them cuz you make an extra pip on every single deal that you do and think i m gonna trade. You do you cut under trades color on director pips thanks very much i m all whatever you get the point so spreads.
If you know whereas spreads guys. And we forget and we kind of forget because conveniently of course when we re mark to market looking abroad. So it says we ve got along here 53. We ve exited at 153 great we ve made 100 pips.
But we forget that actually we ve paid the spread as well because it s not marked on the sprink could have been in a 45 to 53. We ve played a massive spread on that yes our net profit is x. But we could have had more if we worked out a spray anyway enough from that i m sure you get the point guys right overnight charges. Don t forget that same this short borrow fees same kind of thing.
Depends. What we re doing of course and who were trading with you mustn t forget those because if we re trading on margin. We re going to be charged to hold positions overnight. So over that longer period of time for holding swing trades with a reasonable size over a long period of time that kind of up to be half the amount of money similar short borrow fees.
If you ve got a strategy that works on heavily shortage stocks normally those boring fees are higher some cases guys not a hundred percent a year. Now you ve got to be almost you ve got to be waiting am. I right it s gonna be go be absolute to go 2 0. Is that s to make any money for you or it s got a moving very very quickly very a large amount.
Very very quickly so that s the extreme example. What you get a point. Keep. An eye on is overnight.
Charging a short broker fees. You know if you need to negotiate with a broker. And you re holding a lot of physicians overnight and do so. If you need to maybe put more capital into the account.
So you re not trading..
So. Much your margin. And you have that ability then maybe consider doing that you re still risking the same amount. But you re not borrowing it so you shouldn t be paying those overnight charge.
It s not for the short borrow. But if you re trading on margin days. Okay data fees now you may well it s real way better now guys to know this the current environment. We re in now they so cheap charting is almost free payday 2 fees daily futures stuff in this that the other three need to but we re not no one s paying eight hundred nine hundred quid a month.
Any more effort for a real time charts so that s better than it was but still be aware you re not paying for stuff you don t need if you take one trade on crude oil futures a quarter and you re paying for an imax data feed it may only be released relatively small amount. But why not do something different why not say well you know well actually i don t really need that it really to trade on that or i don t really need to be monitoring crude oil. All the time. Why don t i just use the late fee because i m on a swing thingy or whatever you get the point.
There s any point they see some people and i ve been guilty of this the world s to be honest with you you know signed up for every single data feed about this massive bill. I m like you know four or five months. Any thinking why am i paying for every single exchange. Almost.
I ve got a ridiculous bill and i ve not even trade these things i m actually gonna be better off if i just get rid of off with it just focus on the stuff. I want to trade and even you know the stock system so she relatively cheap anyway. But someone s keeping on commissions. The big one so this was going to apply if you re trading cfds.
I know that the different brokers have different structures. Some just pay you pay the spread some you pay the spread and you pay commission on top. If you re trading stocks. This is gonna be useful to you for training commissions and maybe.
It s time just do it deal with a broker it doesn t harm. Even if you ve got a small account to ring up and say hey this is my account arm can we do a deal on commissions. It takes you ten minutes and the worst they ll say is now you know what we can t do it. And then you can say well what sort of level would you do a dealer and they said well if you re doing this amount of money then we can do a deal then you know then you can either shop around where you face it accept it but from a trading strategy point of view.
We don t want to be churning too much because it s not up totally frictional expenses. Adding adding up okay taxes. Fortunately. We have a vehicle in the uk called spread betting.
Which means for the majority of people..
The trade is tax free different circumstances can apply. But for the majority that s the case. So you d have to pay tax on that however if you ve got other things you re trading for any future trade cfds in other countries. Etc.
Taxes do come into it now does that mean that you should allow that to change your strategy. No i don t think it does as a saying out there isn t it that you shouldn t let them want the tail wag the dog. The dog wag. The tail someone could put the coin section below.
But it s knowing about the tax base that you shouldn t consider the taxes too much when you talking about your investment. Yes. You should think okay. This is an expense.
I need to pay at some point. And but being aware of things like okay. There s certain stocks in the uk that if you want a mule is still available now but on aim. If you re investing in the stock for a certain period of time the capital gains gets staggered down do due diligence on that and check it out for yourself.
But there may well be other things and wrappers you can put stuff into different tax wrappers. Too. Which really is just paperwork just prudence and due diligence saying. Well you know what and there s we ll put this in this wrapper because i m going to save a little bit of tax and i m only doing a small amount of trading in anyway you get the point so just some planning can save you an awful lot of money when it comes to taxes.
But it s no advice on taxes guys. It s just burn. It being aware that this expenses. You can t just say oh i ve made this much money.
And forget you can have to pay a tax on it right performance fees. So this is more few mutual funds and your funds that you re putting money in lot of robo advisors or whatever it may be being aware that those fees can add up you think about over a long period of time. If you re putting money in and you re you know letting it chug away chug away travel away can you replicate our performance without paying that fee. So i m going to consider and the final thing is are the fs fa fx.
Exposure and then i miss the ex off the hat fx exposure. What i mean by that so the broker. Some brokers if you re trading in a specific currency or if you re trading on a specific exchange. You will have they will convert that your native currency.
So let s say gbp for me they ll convert that into usd..
I trade us dollar stocks directly on the exchange and then it will leave the balance. I ve made in usd and then i maybe i ll go on our trade or another exchange. I let s search rate on the canadian strange you believe in canadian dollar. So i ll have usd.
I ve gbp. I ll have canadian dollar and that ll all be in there. But then i ll have fs exposure. Which i didn t want now i could convert that back to gbp after every trade of course.
There s a bit of time with that and also in paying spread. So forget don t forget about things like that you ve got to pay your spread on that and also you know unknowingly that you forget you ve got this exposure. So not only but the spread. But also your unwittingly you should be underweight and you should know.
But you potentially got this exposure to other currencies that you didn t really want you ve got a trade on you didn t really want so being aware of that depending on the broker that you re using the penniless situation you re trading that may well be the case anyways those are some kind of frictional expenses that we have to take into account. All the expenses. This is just a kind of a video to make you think okay well. It s not just about going from a to b.
It s about thinking. What s the most cost effective way of me doing it and specifically for thinking about new strategy. You think got a new strategy for example. I want to just have a short strategy.
That s fine and that works. But don t forget those borrow fees can add up those not charges. Cannot you know if you re spread trading. You know some illiquid instrument.
There s perhaps been pumped up aggressively then the spreads are going to be higher. And we tend to forget that because what we re looking for is the char and we forget actually you know sort of cost. There s lots of get in that deal if we re using market orders going to cost us a lot to borrow and etc. So something to think about guys take means we ll count all your expenses.
When you re trading take care whatever you re doing buh bye. You ” ..
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Take into account all the expenses in trading. http://www.financial-spread-betting.com/strategies/strategies-tips.html PLEASE LIKE and SUBSCRIBE TO HELP US DO MORE. Warren Buffett mentioned frictional expenses; these are little expenses that come into a deal but you don t think much about but they can add up to substantial amounts over time. And this also applies in trading (not just investing). For instance as a trader you might ask yourself should I do scalping, day trading, swing trading or long term trading? Scalping is not really appropriate for most people as frictional expenses can add up rapidly for very short-term trading
– Spreads – tight spreads; trade a market where bid-offer spreads are reasonably narrow. Otherwise if you re trading less liquid instruments, see if you can work limit orders in the middle rather then utilise the bid/offer.
– Overnight charges
– Short borrowing fees
– Data fees although these are much cheaper nowadays; make sure you are only paying the exchanges you need data from.
– Commissions; check with the broker if there are any discounts for frequent trading
– Taxes; spread betting is tax free, CFDs are taxable but then you can offset losses against future gains.
– Performance fees; mainly for mutual funds/investment funds and robo advisors.
– Forex exposure
trading expenses, trading costs, day trading costs, operating expenses, tax deductions, bid-offer spreads, overnight charges, overnight financing, short borr…