| A lot of companies encourage people to trade. Some | | | | week (2 a day), this results in about $5000 in fees |
| companies attempt to "teach" people how to trade | | | | over the course of the year. That's 25% of their |
| and be successful in the market through short-term | | | | portfolio! To be profitable against the market, you |
| trades. Online brokerages offer discounts and "special | | | | would need to beat the market by 25% a year, so |
| tools" to frequent traders. | | | | on average make about 35% a year (since the |
| To anyone with half a brain, it should be obvious why | | | | market makes about 10%). Anyone who can make |
| these groups encourage people to trade. Those | | | | 35% on average would soon be one of the largest |
| "teaching companies" are trying to sell a product, | | | | hedge fund portfolio managers on earth. |
| which is "investor education." How good or bad (most | | | | However, instead of a $20,000 portfolio, let's say |
| likely bad) their advice is is not the subject of this | | | | you had a $2 million portfolio. All of the sudden, these |
| article. As for the brokers, more trades means more | | | | fees are now just .25% of your asset base, which is |
| commissions, so it's obvious why they encourage | | | | quite manageable. What turned into an |
| trading too. | | | | insurmountable obstacle is now not a big deal. |
| Some people are successful at frequent trading, but | | | | Brokers don't give discounts to people with smaller |
| most are not. So is trading for you? Each person's | | | | asset bases so that trading is more reasonable for |
| situation is different of course. But there is one | | | | them. In fact, if anything, they charge people with |
| simple method of giving you a clue if you should | | | | large asset bases less per trade. This compounds the |
| even consider frequent trading. | | | | issue, making it clear that unless you have a lot of |
| In short, stock trading is a rich man's game. Trading | | | | money to throw around, trading just isn't for you. |
| frequently means racking up commissions, and for | | | | So if you are considering trading, first consider your |
| trading to be profitable, these commissions need to | | | | asset base. Frankly, if you have less than $500k in |
| be small relative to your asset base. Let's consider | | | | the market, most likely trading is not for you. The |
| someone with a $20,000 portfolio. Even if they are | | | | fees themselves will make it an unprofitable venture. |
| paying just $10 a trade, if they make 10 trades a | | | | |