Impact of Commissions!

Hi all,

I just want to share something that I believe could help some traders transition from negative to positive results.

A few months ago I found something that looked like a viable edge for a daytrading system. Backtested manually and got great results so I decided to forward test it with microlots.

After 300 real trades executed manually (tested for 3 months, avg 6 trades per day on EUR/USD) with slipagge and comissions (I trade with an ECN Broker) the net result was 0.15 R. Meaning that after close to 500 hours of screen watching, waiting for my setup and execute it to the best of my ability, my account was exactly at the same point where it started....

The thing that made an impression on me was that the system produced profits, but the commissions were equal to them. After realizing this I started researching for other brokerage options and found a broker offering more liquidity, tighter spreads and more importantly the commission is almost 50% less.

Applying this commission scheme to my results (assuming the same execution and slippage) my system would have produced a net result of 32R in a 3 month period.

I remember reading somewhere that many of the legendary floor traders would be net loosers if they traded with "retail" conditions. At the time it sounded like no sense to me, but no so much now...

This has a much lesser impact for trading higher timeframes, but for daytrading I now believe could be the difference between red and black numbers.

I'm still puting the pieces together but I hope that this small observation might help some other traders.

Can you be more specific about the brokers you used?

It only stands to reason that the more trades you make and smaller profits you take, commissions + slippage are going to have a larger and larger impact on your net results.

Careful here... what makes you think you'd get the same or better execution with a broker who charges less commissions?

My intention wasn't to promote or trash any broker. It's just that I haven't seen (or really quantified) how much a difference the cost of trading could make for a daytrader.

If you are interested in the specific details send me a PM.

I know that you get what you pay for.

I probably should have mentioned that the better comissions are linked to a higher trading volume, but as I said, my intention was not to promote a broker.

It was just that watching my statement after my forward test reading:
P/L= 64R
Comissions= 63.85R
made a huge impact on me.

Probably clear as water for many traders but it wasn't as clear for me before....

I trade very long term and commissions eat up about 6% of profits.

Okay, either you don't trade long-term, or you have a really insane broker.
Let's say you shoot for 1,000 to 10,000 pips profits, which is the very long-term. you are saying, that you got an average of 60 to 600 pips commissions on those trades.

I just can't believe that. But maybe you can enlighten me with a proper calculation.

I meant net profits, not gross profits. You pay spreads on losing trades too. And I trade some exotic stuff too with wide spreads.