The Butters In Trading Spread
It costs money to trade. But that doesn’t mean the COST is ONE CONSISTENT PRICE. Instead, brokers offer different pricing options for traders.
If you’re a swing trader or a position trader, this article is probably not for you. Instead, it’s for those of you who have found an edge in trading the market frequently. The logic is that the broker will charge you a certain amount to place a single trade.
Suppose a swing trader places one trade in a week and makes a 5%, they only have to pay spread or commission ONCE. So as a day trader/scalper, if you achieve 5% in a week, chances are you didn’t do it in one trade.
You probably have to pay spread/commission TWICE, FIVE times, or TEN times. Therefore it COSTS you more to reach the 5% return that the swing trader achieved when only paying trading costs once.
What are my options?
What is spread? The spread is the DIFFERENCE between the BID (the price your “sell” position will execute at) and the ASK (the price you “buy” position will execute at).
Forex brokers will usually offer “standard” or “normal” accounts. It won’t matter what they call them.
You’ll these account types if the broker doesn’t charge you a COMMISSION but will give you a disgusting spread from about 1 PIP, which is A LOT when you trade on the 15-minute chart or lower.
In this case, your risk-to-reward will be compromised, which is NOT IDEAL. So what can you “Mr. Active Trader” do?
Along with these “standard” accounts, most brokers will also offer you an ECN account, a “Razor” Account, or a “Pro Account.” Again, it doesn’t matter what they call it.
You’ll notice these types because spreads start from 0.0, although you will be charged a COMMISSION.
This is not a bad thing since the spread of 1 PIP or more can end up being more costly than the commission they charge (Depending on the broker, some of them are CROOKS for the amount of commission they charge).
We’ve already talked about how it costs more to be a ninja in the Forex markets. If it takes more effort to achieve the same 5% compared to swing trading, why day trade? Why spend all this EXTRA money to trade?
The answer is OPPORTUNITY. You already need to out-perform a swing trading strategy to achieve the same amount, yes, but you don’t have to stop at getting the same return.
As a day trader or scalper, you have the opportunity to work your money MORE than a swing trader or position trader. Check this out!
Let’s say a swing trader (A) takes 10 TRADES in a month, and a day trader (B) takes 100 TRADES in a month. Both participants RISK 1% per trade for a 2% REWARD.
If “A” wins 5/10 trades that month. They make 5%.
If “B” takes the same 50% Win-Rate. At the end of the month, they’ve won 50/100 trades. They end up making 50%!!
Read that again if you need to.
Day traders pay more to trade for the OPPORTUNITY to get more returns, which is not easy. You need to have the time to be able to day-trade/scalp.
A full-time job might stop you from trying to do that successfully. Don’t bother Day-Trading or scalping if your goal is to get a 20% return in a YEAR! It’s less expensive to just swing-trade. You need to out-perform at least 50% a year for Day-Trading to be worth it.
Don’t let people tell you that 30% a year is a good return even for hedge funds yada yada! If you’re a DAY-TRADER, those numbers don’t apply to you! It doesn’t make sense for you to place 1000+ trades every year and only pull 30% from the market, 30%!?
Swing trade instead or improve your day trading strategy. Hedge Funds trade BILLIONS of dollars. That is the only reason they make 20% a year.
They don’t need 100% return year-in, year-out to be successful. It would upset markets to open the large positions required to pull more significant returns. Their capital limits them believe it or not.
So understand your lane. If you’re a swing trader/position trader, this probably doesn’t apply to you. Suppose you’re a short term trader of any kind. Make sure you shop around for the broker you want to use and make sure you’re paying the least you can for every trade.
If you are looking for a broker with competitive spreads in a variety of markets then check out Plus500.
Don’t bet the farm.
Don’t lose your shirt.
Cut the L.
Keep the W.
Risk disclosure – Trading CFD’s carries risk, losses can exceed deposits.
Plus500 is licensed by the FCA.