My trading broker is greedy.
He charges me money when I make a profit.
He takes money when I make a loss.
He even takes money when I close the trade at zero profit loss.
Then there are Exchange charges, transaction charges, and things get really bad.
When I trade on higher timeframes, I pay around 1% of my profit loss in charges.
But when I trade on smaller timeframes, I increase my position size to maintain the same risk at stop-loss.
This makes the charges go up to 5% of the profit loss amount.
That’s crazy!
How badly is trading on smaller timeframes affecting my profits?
Does your broker give you free candy for making him so much profit?
I clicked the start button on my trading simulator to find out.
I divided 3000 trading bots into 3 groups.
All of them take random trades with a 60% win rate.
The reward-risk ratio is 1 to 1.
Unless they are really stupid, they should easily make money with this.
But each group has a greedy broker.
Group A has to pay 1% of their profit loss as a commission.
Group B has to pay 2%.
Group C was the unluckiest one, with 5% of the profit loss in commission.
Don’t feel bad for them.
They deserve it after what they did to my neighbor’s dog.
To make their lives a living hell, I made the simulation more realistic.
Real Markets are not worth trading most of the time.
So now this simulated market randomly becomes bad 80% of the time.
The win rate drops to break even 50% when this happens.
Check Out these 3 blue bars on this chart.
They show the profit made by each group.
It’s pretty equal.
But check out the average account balances of these 3 groups.
Only two of them are moving in the upward direction.
Group C is making a loss.
The gross profit is good.
The win rate is profitable.
But Group C just can’t keep up with the high commission.
That’s the effect of commissions on your hard-earned profits.
When I was trading smaller timeframes as a beginner trader, I faced this exact problem.
To fix it, I learned to stop trading when the market gets bad.
If you are day trading on smaller timeframes, a 50% breakeven win rate is not really a breakeven win rate.
It’s a good idea to trade on higher timeframes or learn to identify when not to trade if you don’t want to deal with high commissions taking away your profits. It worked for me!