One of an investor's prime concerns is the amount of money they will spend on transaction costs; whether those are brokerage commissions, SEC regulatory fees, margin interest, or if those costs are the slippage associated with the bid/ask spread.

The most common way to reduce transaction costs is pretty simple.

TRADE LESS

However, it would seem that although transaction costs are certainly eating away a good percentage of my return, from a review of my recent trading history, I tend to do better when trading more actively.

Also, all my profits are gone right now more or less due to a position that I was not ready to sell out on, even though I had been holding it a couple days and it hadn't been working out for me. It seems that even if my active trading decisions are either incorrect or not optimal, they are still better decisions FOR ME than any attempt at reducing transaction costs.

I think this is due to the fact that I view using an active short-term trading strategy not necessarily as a way to make a bunch of money quickly (although that is a distinct possibility) but rather as a methodology for reducing risk. Perhaps this strategy is more favored by the current market conditions also; the volatile moves, head-fakes, and frequent lack of consistent market direction lends itself much more to an active trading style; mitigating market risk is currently more important than mitigating business expense.

For most traders in most markets, taking too many trades is a sure path towards reduced returns. It seems that for myself, taking too few trades is a recipe for over-exposure to risk; and mainly for myself, too few trades means holding onto positions for simply too long.

So, right now I'm doing pretty well with my trading. Last month was a bit of a downer, but this month has been good to me so far. I just need to stick to my rules and continue being conservative.

Here's a graph of my account values from April 30th to June 13th.

However, despite my relatively satisfactory performance as of late, I would be even better off if I hadn't had to pay those damned commissions.

I have paid $100 worth of commissions to Zecco and I have paid $147 worth of commissions to SogoTrade. I could have paid approximately $40-50 less in commissions to SogoTrade if I had signed up for their subscription trading package; $10 a month subscription and you pay $1.50 per trade instead of $3.

Current trading accounts total: $5710.14
Current total rate of return since Feb 1: 8.76%
Current $ return: $460.14

Same numbers, but assuming NO COMMISSIONS on ANY trade (but still SEC transaction fee slippage)

total: $5957.14
total rate of return since Feb 1: 13.47%
$ return: $707.14

Because of my small account, these fees add up to a large portion of my total return - 4.71% of my actual return is eaten up by commissions!

My first trade with SogoTrade that cost money was in early May, so if I turned on the $10 monthly subscription package for $1.50 trades, my SogoTrade commission costs would have been:

$20 for two months worth of subscription fees
$73.50 = 49 $1.50 trades
93.50 total commissions paid to SogoTrade

for a savings of $53.50 or 1.02%!! of my account

Thankfully, commissions and transactions fees are part of your cost basis for an investment when calculating gains or losses for tax purposes.

Also, a shout-out to my first referral to SogoTrade; I get an extra 25 free trades! It's almost like getting $75 in my pocket!

This stock had news of a financing deal. For some reason, people like to interpret this as positive news. Regardless, it brings volatility to the stock and a potentially profitable trading environment.

Please note that I attempted to short this stock much too early into its run. It would have been much easier to play this stock to the long side, but for whatever reasons, I was looking to short.

I should have just covered this short on the day I opened it, at about $6.30 - instead I took extra risks to make approximately the same dollar profit, over a longer time span. With slightly better execution - covering at around $6.40 today instead of $6.45 - I would have made a better risk adjusted return. Regardless, my exit was very timely. I should have even reversed my position.

A long time ago, I recommended Sun Times Media as a potential 'dead cat bounce'. The company was definitely a dead cat; went from NYSE to Pink in the blink of an eye. If you want some really 'entertaining' reading, check out their 8k.

I had always thought this stock pick was out of a hat, but it's interesting reading back on what I had to say regarding the potential future price action. Back then I sort of thought of it as a sort of 'Buffett' style move or some such hogwash, but I did seem to have somewhat of a handle on price action.

My story on SVN/SUTM was written somewhat after I bought the stock on Investopedia's simulator at the price of $1.05-1.14; I originally took notice of the stock at $1.00-1.02, and it was part of the reason I opened up a simulated account.

From the post:

Their share price has fallen to nearly a dollar. Currently they are selling for $1.31 a share in after hours trading. Their stock price has fallen due to the 'looting' of the company by the former CEO and others. They also cite the decline of the print advertising market as a major source of their woes. I do not have any idea if this company will do well over the long term. However, I believe that this company will experience somewhat of a rebound in share price over the next year if it does not completely explode. This is the rock bottom of the stock, I think it will get up to at least 2 dollars a share from where it's at now. After that, it's anyone's guess at this point.

...

However, my gut tells me that if nothing else, there's going to be enough speculation on this stock to make some money. This stock went up while the Dow and S&P went down.

I exited LLNW the other day just about at my cost basis, but I asked the question: what about re-entry? The stock held $3 on low volume today; no sellers. The other day when I asked the question about re-entry, I noticed the fair amount of volume that came in towards the close (relative to the last few days). The volume spike that shot it up over $3.10 at the end of the day today was a signal to buy, but I let my own personal feelings about the stock cloud my objective analysis; I've seen it lose $3.10-20 level a lot of times now.

USEG had price action in my favor, but the volume is still garbage. I do like how it closed above $2.65

This longterm USEG trade is getting to me. I overextended my capital on this trade and should have taken the profits that were available long ago. The lack of volume on the decline indicates holding is not entirely a bad idea, but the longer term charts aren't making me happy anymore. The stock is still fundamentally undervalued.

This HEK trade got botched by the internet being out the morning I intended to exit... I believe I exited the position at around a $5 profit after costs, due to my excellent entry, although I should have been able to make $20+ on the trade, which would have represented a 2.4% gain on invested capital ($830 original position).

It's not good for me to feel proud about this exit. I was holding this stock since 5/08/2008, and at certain points experienced a draw-down of this position close to -$200. A 20:1 risk/reward ratio makes me puke, along with this ungodly amount of time holding the position.

This was just me chasing a trade to lose like $30 or so. The trade could almost be an overnight short from its afternoon fade today, 5 day run-ups like this are hard to sustain without some correction. I probably should have been out of this trade after stopped holding $10.50s (I got out at $10.40). Any morning spike tomorrow that fails to break the $10.60 resistance on significant volume would likely be a good short.

Stay tuned for the monthly update, you're guaranteed some laughs!

The market could be pretty bloody next week, I'm definitely going to be looking for signs of weakness in financials (XLF) and real estate (IYR), but I'll be looking for strength in gold (GLD) and oil (USO).

Anyhow, for some reason, even though I expect the market to sell off sharply (if it does sell off, that is) - I am long USEG, LLNW, and HEK over the memorial day weekend.

There will probably be some ugly in my accounts next week. Stay tuned for the monthly results! Sneak preview: previous month's gains all peeled off, and a highly positive outcome would be that I close the month green for total return!

Anyhow, here are some charts.

Potential profit-taking opportunity here on LLNW. We'll see if my decision to stay in was wise or not... short term market weakness seems to be rearing its ugly head.

Perhaps I need to get better at learning how to take profit...

Part of my problem is that the USEG and LLNW are positions that are along somewhat different lines than my normal strategy. Or maybe I'm just telling myself that. I need to learn to take Dr. Brett's advice and go to simulated trading when trying out new strategies.

One of my few decent trades in a while (and more in line with my typical strategies); I'm not expecting too much more movement on this one next week, we'll see. Will look to exit soon on Tuesday morning. Main reason for holding onto trade through weekend is to avoid a 'pattern day trade'. Unfortunately, this position is also my smallest. That's the way it always works!


Which of these would you rather be long on?

I went long 500 shares of LLNW at $3.11 at 12:26 PM on 5/08/2008

I went long USEG 300 shares for $2.80 on 5/16/2008 at 9:42 AM

Still waiting to close them both out. USEG is the more correctly sized position, I should not be so exposed to LLNW for such a long period of time.

April 1, 2008

1. Short 200 OWW at $7.02
2. Cover 200 OWW at $7.19 loss: -34.02

April 2, 2008

3. Short 300 COT at $3.4801
4. Cover 300 COT at $3.35 gain: +39

April 4, 2008

5. Buy 100 GU at $15.15

April 8, 2008

6. Sell 100 GU at $14.21 loss: -94.01

This one was particularly frustrating due to the fact I could have easily sold at several points for a profit, and possibly even over $80 profit. You can see some of my thoughts in this post: Anatomy of Failure, a bad GU trade.

April 9, 2008

7. Short 100 CRY at $10.1701
8. Cover 100 CRY at $10.25 loss: -$8
9. Short 100 IMMR at $8.11
10. Cover 100 IMMR at $7.90 gain: +21.01

April 10, 2008

I should have made this trade in my SogoTrade account... I ended up paying $9 commissions...
11. Short 250 PRTS at $3.98
12. Cover 250 PRTS at $3.85 gain: +23.48

now back to SogoTrade...

April 11, 2008

13. Short 300 NTZ at $4.00

April 15, 2008

14. Buy 500 MNKD at $2.00
15. Sell 500 MNKD at $2.18 gain: +90.15

April 18, 2008

16. Short 200 NXTM at $6.46
17. Cover 200 NXTM at $6.32 gain: +28.16
18. Cover 300 NTZ at $4.05 loss: -$14.97

This NTZ trade was silly on my part; this stock was going absolutely nowhere and just trading within a range. I should have taken an early profit and gotten out.

19. Short 500 EDEN at $2.59
20. Cover 500 EDEN at $2.36 gain: +114.99

April 22, 2008

21. Buy 500 MNKD at $2.08
22. Sell 500 MNKD at $2.10 gain: +10.60

Hmmm... just about out of free SogoTrade trades by now ain't I?

In order to avoid the SEC pattern day trader rule in case I want to liquidate my position intra-day, I do the next trade with Zecco, paying $9 roundtrip commissions...

April 23, 2008

23. Buy 500 CPSL at $3.66
24. Sell 500 CPSL at $3.7001 gain: +11.05

This trade was annoying, because I should have done 1 of 2 things: either sold into an early spike for gains closer to $50, or waited it out for a later spike, which did come despite the fact I got scared out of the trade.

April 24, 2008

25. Buy 500 CPSL at $3.6999

Back in CPSL again, and too close to the middle of its current range.

April 25, 2008

26. Sell 500 CPSL at $3.65 loss: -$34

April 28, 2008

27. Short 300 NXTM at $6.36
28. Cover 300 NXTM at $6.22 gain: +$42.20

This NXTM cover is where my free trades in my SogoTrade account ran out. It was good while it lasted, and I'd be down an extra $75 without those free trades!

April 30, 2008

29. Buy 500 MNKD at $2.25
30. Sell 500 MNKD at $2.49 gain:+$114

Account Balances

Zecco: $2514.35
SogoTrade: $2916.24
Current Total: $5430.59
Total Original Capital: $5250
Current Total $ Return: +$180.59
Current Total % Return: +3.44%
$ Change in April: +$309.64

My net change for the month of April was +309.64, which despite having some good luck, was largely because of a better definition and application of my strategy. However, please note that without the copious free trades from SogoTrade and Zecco, I would probably be sitting at a loss simply due to transaction costs. I have made well over 60 individual trades since opening my brokerage accounts; even if all of those were $3 SogoTrade commissions, I'd be sitting at +$0 and likely be posting a negative return.

It's kind of funny that most of my good trades have ended up in my SogoTrade account. Of course, since my SogoTrade account was opened much later, and I didn't start getting a strategy together until early last month, it's not surprising. Also, SogoTrade has much better short inventory than Zecco, so sometimes I am unable to make profitable short trades in my Zecco account purely because I can't borrow the shares I need from Penson.

See also:
My review of SogoTrade.
My review of Zecco.

If you're interested in short-selling and you're using most discount brokers, there are a lot of disadvantages.

Short-selling at Zecco

You can find the occasionally updated list of easy-to-borrow securities from Penson right here. ThinkorSwim is another broker that uses Penson for clearing, however I'm not sure how the brokerage houses get 'dibs' on securities from their clearing agents.

It says right there on the easy-to-borrow list that no securities under $5 are able to be shorted, but I have successfully shorted stocks at Zecco as low as $3.25 - the only time an order was rejected for a stock being too low-priced was an order to short sell a security at $2.50 although it accepted an earlier short-sell limit order for the same stock at around $2.70 that was too optimistic. I assume the limit is therefore actually $2.50 at Zecco.

Shorting at SogoTrade

SogoTrade is unique in that it's self clearing; it's a direct subsidiary of Genesis securities.

You can find the easy-to-borrow list at the Genesis Securities website (I contacted them in order to find out where it was). It's a quite extensive list, and typically has many stocks available for shorting that are not present at Zecco. A few stocks this week that I could have shorted that Tim Sykes was unable to short were available at SogoTrade, namely FEED and PSTI. It certainly doesn't have everything, but for a discount broker, SogoTrade seems to have a good short list. I am not aware of a 'too-cheap' restriction on shorting, but the lowest priced stock I have shorted was at $2.59

The easy-to-borrow list at TradeKing

Well, I contacted them, and this is what they had to say about easy access to the daily short list:

Our brokers here have access to a good to borrow list. Since this list is constantly updated we are not able to make it available to clients. If you have a question about whether or not a specific stock is available to sell short contact us by phone or live chat.

I'd rather just see a list. Is that too big of a deal? Genesis seems to have their act together. That list is clearly auto-updated. I assume you could probably get TradeKing's list from Legent Clearing, but I have no idea who you would contact within that organization.