Only the cost is certain
Nobody knows what you will earn, but costs leaving on every trade is certain. Managing the controllable cost before the uncontrollable return is therefore the rational order. The more often you trade, the more this certain loss accumulates.
Costs come in layers
Counting only the commission shown on screen misses the real cost. A single round trip carries several items.
- Buy and sell commissions, incurred twice on a round trip
- Transaction tax, which in some places applies on sale regardless of profit
- Spread, the difference between buying and selling prices
- Slippage, the part of an order that fills away from your price
- Currency conversion, for foreign assets
About 'zero commission'
Charging no commission still leaves the difference between the buying and selling price. That difference is a real cost and widens in thinly traded assets. Commission waivers also usually carry a period or conditions, so checking the rate after they end is worthwhile.
Tax changes the timing
Where gains are taxed, selling crystallises the tax each time. Holding the same asset longer defers the tax to that later point, and the deferred amount keeps working in the meantime. Frequent trading removes that effect. Rates and allowances vary by country and by year, so check the current rules.
What 1% does
A 1% annual cost difference looks small over one year. Subtracting 1% every year from the same return, though, visibly separates the final amount over a long period. That is why comparing products means looking at total expenses and trading costs rather than expected return alone. This explains the structure of costs and recommends no particular product.
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