Daytrading costs – all expenses in a nutshell
- Von Thomas
As with any business, you need to control your day trading costs and fees. For cost control to work, you should first get an overview of all your expenses. So here in post 3 we talk about everything related to money and costs.
What are the cost blocks? When do costs occur? What expenses do I need to incur and when? Are there startup costs and what industry-specific day trading costs even exist? Because day trading costs money, of course, as we will see in a moment.
Let’s find a list of all day trading costs and fees below.
Daytrading Hardware
Trading without a computer is no longer possible today. Therefore, a trader needs a computer with which to execute his trades. Usually, it is not necessary to purchase expensive top-of-the-line hardware for trading.
Unless you want to do intensive backtests. In such a case, you will need a fast processing core and enough memory.
In any case, a Windows computer is advisable. As good as Apple is in many respects, the fact remains that not all trading applications run under IOS.
With Windows you have no problems and therefore the day trader should turn to this operating system.
Advanced trading hardware (monitors, mice, keyboards)
Is there any additional hardware that is important for trading? Let’s see further.
Monitors
Time and again, you come across traders who use more than one monitor to watch multiple charts in parallel. In some cases, there are even 6 or 8 monitors positioned in complex setups on and next to each other at the desk.
Does a serious trader need this equipment?
As so often, it depends on the trading style. There are also successful trading approaches that can be executed on a small laptop screen. Likewise, there are methods that require multiple screens.
In any case, the success of the trader does not depend on the number of screens used. And the beginning trader should by no means think in the beginning that he needs more than one display to learn trading.
These costs for additional monitors can be saved and better invested in his trading capital at the beginning.
Mouse and keyboards
Wireless or wired? Similar to the Internet (see below), the trader must decide which variant he wants to use. Wireless mice are sufficient for trading models where precision and speed of order entry are not important.
If you are trading quickly in any form, you should choose the cable solution. And that is for mouse and keyboard.
Special trading keyboards and mice make sense for ultra-short-term trading. Because here every keystroke must be right. Every mouse click must fit when you execute trades every second. And normal keyboards, even if they are of good quality for everyday use, will not suffice here.
The problem with these special solutions is their price. For good trading keyboards you can pay several thousand euros. Mice are a bit cheaper, but the cost of these trading hardware exceeds the purchase cost of normal hardware many times over.
Trading Software
Here, too, standard programs are usually sufficient. Since many trading programs today are browser-based, it is hardly necessary to buy additional software.
Under certain circumstances, however, the trader may be interested in documenting his trades with a diary app. Here there are paid or free offers, although we do not want to go into the sense of this project trading diary.
Further software solutions could be found in the area of quantitative analysis. Backtesting, i.e. the verification of historical price data, is often only possible with paid programs.
Certainly, there are already trading platforms today (more on this later) such as the Nano Trader from WH Selfinvest or Metatrader, which have also implemented backtesting solutions. Nevertheless, they are and remain trading platforms whose main purpose is to be found in the actual stock market trading. You will notice this at the latest when backtesting has to become a bit more complex.
Backtesting Programms for Daytrading
The topic of backtesting was briefly mentioned earlier. Since we want to focus in this article mainly on the costs of the day trading business and less about trading styles or strategies, it should be mentioned here that some traders, including the author of this article, swear by backtesting. While others are very critical of it and do without it.
The fact is that there is no such thing as the perfect trading solution. Just as there is no perfect trading strategy. Each way has advantages and disadvantages, whereby some ways lead faster to the goal and some never.
Data for Traders - Experience
If you decide to use backtesting, you need data. Data in this case are the historical stock prices or the prices of other financial instruments. In some cases this data is free of charge.
For example, so-called End Of Day data, i.e. data based on daily closing prices, is often available free of charge in reasonable quality. Yahoo Finance is a good source here with corresponding interfaces that make it possible to update the prices on a daily basis.
For example, the provider of the backtesting software Wealth Lab also offers its own data (Wealth Data), which is of somewhat higher quality than the free Yahoo data.
If you want to make backtests in the intraday area, you must also have intraday data. To the best of our knowledge, this data is not free of charge. Again, there are numerous data providers that provide this information for a fee.
The most famous are:
Tai-Pan
Active Tick
Teletrader
Quandl
Bloomberg etc.
Of course, with all data types and data sources, quality is of crucial importance.
Saving costs here and buying inferior quality is a cardinal mistake that no trader should make.
Especially intraday data is prone to errors. Therefore, you have to research well which data provider you trust.
So it is better to pay a higher fee for this data than to buy a pig in a poke.
Broker Software & Costs
Besides the fact that as a private trader you can only trade on the stock exchange through a corresponding broker, you use a so-called trading platform for this purpose.
This is a program that is usually offered free of charge by the broker.
At least, this is true for all basic versions that we are familiar with.
Demo Account
In this context, we would like to briefly mention so-called demo or practice accounts. These are also provided free of charge by most brokers today. Whereby there may be time restrictions if you are not yet a broker customer.
Demo accounts are intended to learn the handling, so the handling of the software. The platforms are not suitable for internalizing the trading itself from a technical point of view. Because with a practice account the most important thing is missing: the money. Of course, here you work with play money. And when there is nothing at stake, there is no pressure, fear or greed.
So if a beginning trader thinks he is already a trading expert because he makes nice profits on his demo account, it should be said that these successes are of no importance. Then in real money trading the clocks go differently.
Only there the trader has to deal with his own emotions and they are the biggest enemy of the trader.
Daytrader and Internet
To trade, of course, you must have access to the Internet. What is obvious, should nevertheless be mentioned, because some misunderstandings exist here as well.
This is mainly about the speed of the Internet connection and the question of whether wifi is sufficient or whether you need a LAN connection.
Lan or Wifi?
Now this certainly depends on the chosen trading style. Day trading in small time units or even scalping (trading every second) should preferably not be executed via Wlan.
Here it is really about seconds or milliseconds. Therefore, a wired solution is certainly preferable.
The position trader, who calls up his orders once a day and places them with the broker, can of course also make do with Wlan solutions. Because there is no stress and no hectic here.
With regard to the Internet, we would like to give one final piece of advice: take care of a backup. Make sure you have a second internet that you can fall back on.
It would be annoying to miss out on profits or make unnecessary losses because the network is down. So you can save costs in the wrong place here, too. Nevertheless – as a rule, the trader does not incur any additional fees because of the Internet, because most households are already online anyway.
Stock Screener
A trader looks for and trades signals. How and why these signals are created is not part of this post. Rather, the fact itself in terms of cost interests us here and that is why we also talk about screeners that provide us traders with these signals.
Here, too, it depends on the trading style, the desired target markets and the time horizon. Furthermore, it plays a role whether one develops and trades systems with the help of a backtesting software. Because this software is not only used to develop trading models, but it is also used as a screener that outputs the orders.
Without using such a backtesting software, there are several ways to search the markets for signals (screening). Basically, you have to decide if you want to analyze charts manually or if you want to make a selection via a tool.
Regarding the screening tools, we would like to present here the free stock screener from finviz.com. This screener is free to use and the database contains about 8,000 stocks.
However, the focus is USA, although we note that advanced traders turn to trading US stocks anyway, because these markets are cheaper to trade for several reasons and thus help the trader to save costs.
Experience startup capital
One of the biggest costs for traders is trading capital. Just as a commodity trader trades in goods of all kinds, a trader trades in money. So traders use money in the direct way to make more money.
How much money do you need for successful trading?
The question of a sufficiently high starting capital is connected with many questions before it. Because to answer this question sufficiently, we must clarify which markets and which products a trading beginner can and should trade at all. (and which not).
This in turn is related to the peculiarity of certain financial products and markets and we will talk about these peculiarities below before we return to the actual topic of costs.
Leverage
Trading with leverage means speculating on credit. With money you don’t have. It is called leverage because you can multiply (leverage) your profits with it.
But beware: you automatically leverage your losses as well, of course. And because beginners tend to make losses due to lack of sufficient expertise, beginners should refrain from using any leverage.
But here we stick to the topic of costs and also here the share as a trading vehicle comes off very well.
Because stock trading costs money, but the expenses are manageable. Many traders do not even know that shares are also suitable for classic trading or day trading.
But why not?
With a trading broker, even reasonable stock day trading is possible, provided you have the necessary capitalization for some markets (in the USA, for example, you need a minimum capitalization of at least USD 25,000 for intraday trading of stocks).
This special feature can be read under the term “Pattern Daytrader Rule” among others here).
The purpose of this rule, which dates back to 2001, is to protect the small investor from rapid and high losses.
But back to the actual cost of stock trading. Until a few years ago, you had to pay 5 or 10 euros each to buy and sell shares. Today there are brokers who offer trading of securities such as shares for a few cents or free of charge.
Since new providers are constantly being added and the price models are constantly changing, we will not provide a comprehensive cost comparison at this point. Stocks trading today therefore also no longer costs much, the fees are within limits. The day trading fees are therefore no longer an obstacle for private traders.
The important thing is that you can really trade stocks frequently with today’s cheap fees. But if you do, you still have to pay attention to the costs, because not all brokers that advertise cheap fees are really cheap.
Because frequent trading generates high fees and if a broker is too expensive, the return is diminished in the best case. In the worst case you are broke, although the strategy behind it is actually good.
If we now agree that stocks are a good and suitable vehicle for trading beginners, and at the same time know that there are very favorable day trading fee models, then we can also make a statement regarding the available minimum starting capital.
From our experience, the trader should have at least EUR 10,000 in his account to trade stocks reasonably. If you have a broker that charges no or minimal fees per order, you can theoretically start with two or five thousand euros.
Because then the fees and here especially the minimum fees per trade no longer have an impact, as it was the case in the past.
Education - a comparison and overview
Do you have to invest in your trading education? The question should first be posed differently: do you have to learn trading? That would probably be the better formulation, in order to then use this basis to move on to the resulting costs. And unsurprisingly, the answer is yes.
Because every specialist subject has to be learned. It doesn’t matter whether you want to become a lawyer or a tax advisor, whether you want to be a soccer player or whether you are interested in precision mechanics. Without a sound education, these careers will come to nothing. Why should it be any different in trading?
The question now remains whether one should and must pay money for this training. The unpopular answer is: probably yes. Because of course there are many free trading offers on the Internet today. Some of them may well be of good quality. But these offers are mostly for beginners who need help with the first steps. So basic courses of all kinds are often free today. But if you want to go deeper and become a real expert, it will never work without investing time and money.
Because no one will give away real and high-quality knowledge. Especially not in a complex matter like high finance, in which we traders move every day. Trading knowledge is precious and rare.
And therefore this know-how will not be free.
Perhaps we should say something about the training costs at this point from our own experience: a well-founded training does cost money. But first of all it helps to save unnecessary losses. If beginners were properly trained from the beginning, it would have saved many a total loss in trading.
Furthermore, a well-founded education helps to save time. If you stick to an experienced mentor, you have a chance to succeed faster. It is like a shortcut, although this has nothing to do with “getting rich quickly”. So with a good education you buy knowledge and time.
Let’s summarize what trainings are available for traders:
- Trade literature
- Seminars
- Online courses
- Coaching
- Social Media (Facebook, Instagram, YouTube & co)
- Internet (blogs, info sites etc.)
In all segments there are good and not so good offers. On the one hand, the interested trader has to research the quality of the services. On the other hand, he must determine whether he tends to seminars or online courses.
An online trading course, where price & performance are right is our trading academy Dollerhelden. Take a look inside. Now even with a money back guarantee.
Loss
So, apart from the training, does day trading cost nothing? The trading platform is free. So are the prices. Brokers also now charge only small fees, or none at all. Not so fast. Let’s talk about trading losses as the last cost.
Because a beginning trader might be of the opinion that the trading business has no further costs after the initial costs have been raised.
This would make it the only business model in the world that would work like this. Because ongoing trading costs such as electricity or Internet will hardly book a private trader mentally as business costs, because he has Internet at home or on the cell phone anyway and of course also pays his electricity bill anyway. Unfortunately, this is not how trading works.
Because, unfortunately, there are still the losses. Beginners, on the other hand, think that trading losses are avoidable. They think they have made a mistake because they have suffered a loss. But they do not yet understand that no trading system, not even the best, produces only winning trades all the time.
It is in the nature of trading systems that they make temporary losses.
These can be single failed trades or whole periods when the system does not work. And from experience we know that these periods can be long and persistent.
What tempts many traders to give up too early and too quickly and to suspend or stop trading. With the consequence of having been there during the drawdown but missing the rebound.
In the chart you see a typical representation of a drawdown. Above – shown in red – you can see the drawdown progression in percent. Below – shown in blue – you can see the drawdown duration, i.e. the number of days it takes for a trading system to reach new highs again and earn money.
And a trader who desperately wants to avoid his losses achieves exactly the opposite. Because this means that he tries to apply unsuitable means. For example, out of fear of losses, he tightens his stop too tightly and too quickly.
With the consequence to be stopped out even more. With a loss or with too small a profit, which is then missing from the equation when the next regular losses are due.
Conclusion Costs Daytrading
Due to lack of entry barriers or lack of proof of competence, almost all beginners take trading lightly. They use unsuitable methods, speculate with astronomically high leverage and trade markets (Bitcoin & co, Forex), from which a private trader should better keep his hands off.
To make matters worse, a trader thinks that trading profits can be realized without costs (i.e. without losses).
Of course, the start-up costs are low compared to other business models. But you need start-up capital, because you can’t make money on the stock market without putting money to work.
And then there are the ongoing day trading costs that permanently surround a trader in the form of bad trades. A wrong trade is not necessarily a mistake, this is an important core statement.
Just as a mistake does not necessarily result in a bad trade, but that is another matter. What is important is that the trader must understand that he has a good trading system when the bottom line is a profit. And this over a period of several months if not years.
Successful trading means keeping an eye on costs. And it involves sophisticated risk management – not trying to prevent individual losses from occurring. This is exactly what traders who want to become real professionals must internalize.
