Lessons from Jesse Livermore part 6: Commissions Matter

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The Lessons from Jesse Livermore Series explores the trading philosophy and trading rules of renowned trader, Jesse Livermore.  Although developed a century ago, Livermore’s ideas have great relevance for today’s traders. Here Livermore highlights how commissions can eat into profitability.

Reminiscences of a Stock Operator  Ch 2 pg 15 at the bottom

“Well, it wasn’t six months before I was broke. I was a pretty active trader and had a sort of reputation as a winner but apparently I guess my commissions amounted to something. I ran up my account quite a little, but, of course, in the end I lost. “

The Lesson
Being a Stock Operator is a business. Hopefully there is an amount of positive earnings with your trades but as with all businesses there are expenses.  Losing trades, commissions, charting program subscriptions, data feed expenses, expenses associated with getting faster internet,  and expenses associated with any trade services you may belong to. Additionally, expenses with getting something as mundane as the Wall Street Journal or other periodicals shouldn’t be over – looked.

As Jesse points out, commissions can really eat into the profitability of an active trader. Most / many of the brokerage houses do a remarkable job hiding these expenses. A while back, Think or Swim sent me a new disclosure notifying me that the P/L shown on the platform did NOT include their commissions.  I guess one of their customers didn’t appreciate seeing a positive P/L  but then figuring out he was actually losing. For an active trader these commissions can be staggering.

Action Activities

  • Tabulate a full and complete list of your monthly trading expenses
  • Balance against your net trade gains for a true picture of your profitability.
  • Active traders should seek out the lowest cost broker that meets their needs. In my opinion, it is worth the hassle to open a separate account at a low cost broker for your active trading monies. Feel free to keep your longer term holdings with a more full-service provider if you appreciate the benefits you receive from them.
  • If you are a really active trader moving lots of option contracts around, or have a substantial account, its worth making a call to negotiate a better fee structure. No broker rep wants to see AUM walk out the door. You’ll be surprised at the accommodation if you bother to make a little noise.
  • Interactive Brokers is a good place to start looking.  TD Ameritrade will drop commission structure based on account value and trading volume in my experience.

Happy Hunting and Good Trading.

Like the Series so far?  Here are links to additional installments

Part 2:  Stop asking why   HERE              Part 3: Play a Lone Hand  HERE

Part 4:  A Time for all Things  HERE     Part 5: Expensive Enemies  HERE

Part 6: Commissions Matter  HERE     Part 7: Blown up Accounts  HERE

Part 8: Imaginary Millions HERE            Part 9: Give it Time    HERE 

Part 10: Sit Tight    HERE            Part 11: How to Buy and Sell Stocks   HERE

If you have any questions or get stuck, I’m here to help. Reach out any time.
email me at [email protected]

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