The Coolest Guy in the RoomQ: But all together let’s just say we take 20 round turns per
contract. That works out to basically be about$100 at retail prices,
perhaps a little bit less, maybe$70 on a deep discount basis per
day. That’s per one contract. So, if you’re trading, let’s just say
five contracts, that’s$500 in commissions that you must overcome
every day aside from all the P&L issues? [Authors’ note:Atypical
commission from a deep discount futures broker would cost$5per
contract per round turn. So trading 5 contracts 20 times per day
would cost the trader$500 in commissions expenses alone.]
A: Yes.
Q: Which means that in 10 days, that’s$5,000 and in a hundred
days, that’s$50,000 worth of commissions. So you are already in
the hole, even if you stay completely even on your P&L.
A: Exactly. If you take a person who comes to the market with
$250,000, the chances of them being there a year from now is
very high. If a trader starts with$30,000, the chances are very,
very low. It doesn’t have anything to do with their ability or their
discipline. It just has to do with what’s going to happen as they
learn to trade. Let me add one more thing. We were talking about
the decimalization of stocks, and I don’t know what stocks trade for
now—what? A tenth of a cent commission or something like that?
Q: It’s about a half a penny.
A : Well, the nice thing about these futures is we have
decimalization—the SP 500 trades in quarters and Russell trades
in dimes. One tick will cover the commission. If you made one tick
[Authors’ note:A tick—the smallest incremental value that a fu-
tures contract would move—is worth$25 in the mini S&P contract
and$10 in the Russell 2000 contract. With commissions set about
$5 per contract, if the trader was able to net out just 1 tick at the
end of the day he would be profitable in those instruments] all day
long on any of those instruments, you will make money.