4 Practical Tips to Improve your Trading Profits Immediately
If you have been trading for a while, you will have realized that the market always seem to go against you every time you place a trade. It feels like the moment you place a trade, the market starts going against you and you see a negative on your account. You are not alone, and we all experience the same. This is due to various reasons, but the very obvious reasons which many do not seem to register on a regular basis are the trading costs associated with your trades. There are many other factors that can affect your trade but I'll like to provide you with some very practical tips that will help you make immediate improvements to your trading profits.
Let's take a look at what are associated with your trading costs. The moment you place a trade, you incur a lost as you have to pay your broker a trading fee. If you are a frequent trader, this trading fee will add up significantly. Simple calculations, if it costs you $15 per trade and you make about 20 trades a month, your trading fee adds up to $300 a month. Versus another broker who charges you $10 a month, it will only cost you $200 a month. What's the savings? $100 per month, a 33.3% savings. Many people actually know this but they always start off opening a broker without much knowledge, via random selection off the internet or friend's introduction and they end up sticking to the same broker even, for the convenience because they already have 1 trading account.
Tip #1: Compare brokers trading fee charges and open an account with one that has a low trading fee
Spread is the difference between the bid-ask and bid-sell. So let's say a stock price bid-ask is $10.45, one broker can have a bid-sell at $10.46 while another at $10.47. This $0.01 difference makes a hell lot of difference. Imagine you are trading 10 lots. 10 lots x 1000 shares x $0.01 = $100. This is a whooping $100 dollars saving that you can get from a good broker versus a sneaky one. Some brokers are very good at marketing very low trading fees but incorporate some of their profits into the spread of the stock prices. You will only get to know this if you do more research over the internet reading reviews or having another broker account which you can compare real-time. Hence, here comes my second tip of the day.
Tip #2: Open a second account with a reputable broker and compare the best spread
Use the Best Mode of Trade Execution
Though many brokers are now moving towards getting their clients to perform their own online trades, many still offer the service of a quick and easy trade execution at the convenience of a phone call. This service existed years back when brokers were shouting all over the place on the trading floor. It is great service because you get to hear some trading tips from your broker if he is a good one. On the other hand, this extra service also comes at a hefty cost for many. The commission rates for placing a trade over the phone versus one that is done over the internet is significantly higher. For example, an internet executed trade can cost $10 per trade, while a broker-assisted trade can cost $40. $30 difference per trade. Ouch! 20 trades a month and that is $600 savings if done over the internet! So what I have done is that I've made regular calls to my broker to build up the rapport. He gets commission anyways whether I trade over the phone or through the internet. Overtime, he knows me well enough to help me out whenever there is addtional support I need from him. He sometimes goes the extra mile of holding off my payments an extra day rather than closing them short when I am traveling for work. Amazing!
Tip #3: Utilize internet trading, build up good rapport with your broker and get free support
Explore an Alternate Trade Instrument
You may have heard of Options, but have you heard of Contract for Difference? A CFD, or Contract for Difference, is an agreement between two parties to exchange the difference between the opening price and closing price of a contract. You can use CFDs to trade and speculate on the price movements of thousands of financial markets regardless of whether prices are rising or falling. Trading CFD is much simplier than Options as the mechanism is more straight forward. The trade execution is almost similar to that of trading a stock. CFD also allows you to short a stock with greater flexibility than a naked short in the stock market. Many stock brokers nowadays also offer this trading instrument. It's the best set up if your exisiting broker provides the service. If not, go ahead to look for another broker with that service. In general, commission fees for trading CFD are lower than trading a stock. They also provide you with the ability to leverage on your trade account. So for example, they only need 10% of the trading amount for some stocks which means you get 10 times the leverage.
Things to note though is that while using CFD, you'll be charged a financing fee. This is the cost of borrowing the stocks from your broker to trade with the leveraging power. So how does this work out? The gist is to minimize your trading costs. While the CFD provides a lower commission fee, the financing fee will creep up the longer you hold on to the stock. They key here is to utilize CFD for short term trading. You'll have to work out the math depending on your existing brokerage trading fee for stocks and for CFD. For example, the breakeven point for my CFD is 18 days, meaning that if I hold my CFD stocks for more than 18 days, it will cost me more than just buying a regular stock. So, I will only utilize CFD when I am certain that I will enter and exit a trade within the 18 days period. At times, I save up to 30-40% of my conventional trading fees. The shorter the time frame, the higher the savings. However, do also note that slippage will become more prominent due to the nature of the mechanism of CFD.
Tip#4: Utilize CFD for short term trades with explosive movements like breakouts or sharp retracement from overpricing
These are great tips that have immediate and definite impact on your trading profits or bottom-line whether or not you execute a good trade. Why leave money on the table? Take action now!