Here is a recent post I poached from the Power Dip System blog. It obviously applies to the Power Dip, but the implications can be extrapolated to any trader, either discretionary or mechanical, with a smaller account.
It could be considered in conjunction with this previous post I wrote about commissions: Commission Structures and Small Accounts.
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Lets take two hypothetical traders- both with 25K accounts.
Trader A uses a brokerage offering a per-share commission structure of .01/share.
Trader B uses a brokerage offering a per-trade commission structure of 7.00/trade.
We will assume both started trading the Power Dip System on 1/1/2009 and closed all their open trades today. They will have used the baseline model of 1% risk and 10% stop.
Note the differences in the key metrics such as annual return and average trade.
Fixed commissions have shaved over 30% off the average trade.
Commissions are a cost of business. Just like any business costs, if they are too high, they will put you out of business. Trading is a business, and as such, the cost of commissions should not be ignored.
In this study, per-share commissions are superior. However, if these same accounts were to compound over the next decade, eventually per-trade commissions will out-perform per-share commissions as the system starts purchasing very large (many shares) positions.
