The theme of low cost stock trade is often discussed in every forum about online stock trading. Such forum discussion about low-cost or cheap online trading is often connected with terms like discount online future trading, discount online stock trading or generally about low cost discount stock trades.
Such low cost forum discussion and these trading terms made sense when typical stock trades had costs north of 100 USD, but these times are over. There are plenty of good brokers offering quite reasonable prices for trade execution.
A typical good broker’s commissions are today between 1 USD up to 10 USD per typical trade. A typical trade is less then 5,000 shares bought or sold.
But for me the price per trade is not the most important part of trading. I understand that it is a business. As a business it also has its own costs and expenses. And low cost, or cheap stock trade execution is one of my business costs. Other costs are Internet connection, my computers, subscription to some newsletters and investment research I pay, price of my realtime stock price data feed and so on.
If you want to be a profitable trader or investor you must understand that trading is a business. And it has its own expenses.
Cheap stock trades are not only about commissions paid to swing or day trading online broker
Cheap stock trade means for me the trade executed in accordance to my trading system and strategy. Every trade must be based on rules I have prepared in my business plan. It has specific rules for :
- review of current market situation
- selection of proper strategy for actual market situation
- screening for possible candidates for specific market strategy
- preparing individual setups
- proper risk and money management for such setups
- when position is opened then proper management during all time of opened position
- and finally closing of position based on trade management rules defined in my system and strategy
Low cost stock trade is trade with proper risk management
All points above are important, but I think that one of the most important is the rules for risk management and for money management generally. Money management should help with position sizing and deciding how much I can risk on one single position. It means it will tell me how many shares I can buy (or sell short) when opening a single position.
The most important part is the definition of stop loss level in price of ticker I want to trade. This stop loss level is crucial to be able to manage low cost stock trades. Why? Because it is necessary to be sure that your risk is small compared to possible profit from your trade. You have to set up risk management rules to have a very favorable risk reward ratio. Only trades with really good risk reward ratio should be entered. This is a very important condition to achieve a low-cost stock trade.
Position management rules must be observed too. Rules for trailing stop level as the trade develops are very important. Why ? Because not all trades will reach their expected target. And because not all trades will be profitable. But it is important to keep losses as low as possible to achieve our goals – profitable month, quarter or year.
Please remember and understand this rule for low cost trades
- Cheap stock trades are based on minimal risk
- Low cost stock trade could be achieved only by keeping your losses small!