Minimize Trading Costs To Maximize Profits
The Dynamic Wealth Report
August 4, 2008
One Secret Of A Top Trader
A few years ago I decided to replace an old faucet in my bathroom. Now
I’m not the world’s greatest handyman, but I’m not a complete novice
either. I’ve managed to stumble my way through a number of home repair
projects. Some turned out better than others. But for some reason this
faucet replacement was really causing me problems.
In the course of my work, I discovered a few other plumbing problems
clearly beyond my skill set. It was time to call in an expert. A few
days later, Dave the plumber showed up and started working through my
plumbing fix-it list.
I watched in amazement as he quickly and effortlessly replaced the
faucet. This was the very faucet I had struggled with for more than a
few hours. It took Dave all of 15 minutes to get it working.
Now you know why I’m not a plumber . . .
Dave was able to do something effortlessly that I had struggled with. It
wasn’t because he was smarter than me or because of his tools. Nope. He
had learned the little tricks of the trade. He knew secrets to the
project that I didn’t.
What Dave had that I lacked was experience.
So I know what you’re thinking, what does this have to do with making
money in the stock market?
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Most individual investors are like I am when it comes to plumbing –
inexperienced. Unless you’ve been trading on Wall Street for years, you
might not know some of the tricks of the trade. These are little secrets
that the Pro’s know giving them an edge when making money.
But here’s the best part.
Many of these secrets are easy to learn and can make a huge difference
in your profitability. Today I’m going to share with you one of those
little secrets that many beginning (and even experienced) investors
ignore. It’s a simple tip. But it can have a dramatic impact on your
financial future.
Here’s the tip: Professional traders always work to minimize their
expenses when trading.
I know it sounds simple. But here’s the problem. Most investors don’t
really understand just how important this little secret is.
Let’s look at a simple trade. You risked $2,000 to make a $150 profit
over a 30 day time period. The trade itself doesn’t matter. What matters
is the amount of money you put in your pocket.
You collected your profits and laughed all the way to the bank.
But don’t laugh too hard.
Your profits aren’t what they could have been.
By risking $2,000 worth of capital to make $150 your return is around
7.5%. Not bad for 30 days work. If you could do the same trade 12 more
times over the course of the year you’d have an annual return of 90% . .
. outstanding!
But, we’re forgetting one important thing . . . commissions.
Now, commissions aren’t a bad thing. Your broker provides an important
service and they need to earn a living too. But, some brokers charge
more than others. One broker might charge you $15 per trade. You pay to
get in and you pay to get out, so the total cost is $30. So you made
$150 on the trade but after commissions you only took home $120.
It doesn’t seem like much at first but think of it this way . . .
Your
broker is taking more than 20% of your profits.
One way you can minimize these costs is to shop around. Each broker is
different, and they all provide different levels of service. Some might
offer access to options and futures markets. Some might offer generous
margin rates. Some might offer research and other valuable information.
Some brokers will offer just the bare bones trading.
We don’t suggest one broker over another, its company policy.
What I can suggest is that you take a few moments right now to look
around. Tour some of the online brokers and learn how their systems
work. Check their commission rates and fee schedules. You might find a
better broker for your situation. All things being equal, the lower your
fees the more money you’ll be putting in your pocket at the end of the
day.
• Airline Industry (Up 40%)
For the first half of the year the airline industry was absolutely
crushed. Many airline stocks fell by more than 60%, 70% and even 80%. Once oil
prices started falling the entire industry started rebounding. I’m not
expecting this to be a long term trend.
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