Brokerage fees when swing/day trading in Australia

[Sinko]

Hi there,
My name's Kyle and I'm a 19 year old university student.
I'm new to the whole trading scene and have been researching for the last few weeks/month and have decided swing trading (day to week trading) suits my lifestyle best.
I've began practicing my trades on the ASX game and have began choosing profitable trades but have come across a problem.

I want to trade with a starting capital of $1000, looking at risking 2% of this capital with a 4% return.
If I can make, say, $40 profit off a winning trade (4% of my capital) and stop-loss with a $20 loss from losing trades (2% of my capital), this seems like a reasonable plan.
However, the cheapest brokerage fees I can find for a trade is through Self-Wealth, being $9.50 per trade.

If I want to go through with my swing trading plan of a 2:1 profit to risk ratio, I'd have to include the brokerage fees, which, at my capital of $1000, would turn a $40 win to (approx.) $30 and a loss of 2% to a (approx.) $30 loss. This obviously nets to a 50% ratio of walking away with profit or a loss, which would be fine in I could pick winning trades 70% of the time, but knowing that this is very unlikely, I would realistically being losing money or breaking even, which defeats the purpose of trading.

I was just wondering what techniques profitable traders use to make profit after considering brokerage fees. Should I use a higher capital? Should I look at risking more of my capital with a higher profit return? Is there a way to avoid paying brokerage costs through trading internationally or on another market?

Thanks for taking the time to read my query, hopefully you can provide me with a useful response and I appreciate it in advance if you can.
Kind regards,
Kyle

 

[Zaxon]

This obviously nets to a 50% ratio of walking away with profit or a loss, which would be fine in I could pick winning trades 70% of the time, but knowing that this is very unlikely, I would realistically being losing money or breaking even, which defeats the purpose of trading.

Firstly to SelfWealth. I've never used them, so I can't recommend them. In reading through their FAQs, I didn't see anything there that worried me. In particular, they are CHESS sponsored, which is a must for an Australian broker IMO. The money in your cash account is held in their custodian account, which does happen with some other brokers. Just don't store money with them. Keep it invested, or move it out to an external account. Also, they deal in Australian shares only.

As far as your trading, I see you getting eaten alive by commissions. Around 2% for the round trip. Add to that bid/ask slippage which could easily be another 2% round trip. You'll be leaking money, unless you have a very high success rate. You're a new trader. I wouldn't expect you to have a high success rate.

My best recommendation is to buy long term. Either an index fund, or find a good, solid company you're happy holding for some time. The longer you hold, the less your brokerage fees matter due to capital growth.

Come back to trading when you've got more capital.

 

[peter2]

Absolutely, most definitely, you need more capital. Earn money from a part time job or full time during your holidays. Save the money for a trading account, don't drink it away. While you're saving, create your trading plan and paper trade it until you've got enough to start doing it for real.

You should participate in the ASX trading game that's just started (or about to). This will give you valuable experience placing orders and you're not able to fudge the results.

I could suggest you consider an ASF sponsor as your first broker (FP), but you're not ready yet.

 

[Sinko]

Firstly to SelfWealth. I've never used them, so I can't recommend them. In reading through their FAQs, I didn't see anything there that worried me. In particular, they are CHESS sponsored, which is a must for an Australian broker IMO. The money in your cash account is held in their custodian account, which does happen with some other brokers. Just don't store money with them. Keep it invested, or move it out to an external account. Also, they deal in Australian shares only.

As far as your trading, I see you getting eaten alive by commissions. Around 2% for the round trip. Add to that bid/ask slippage which could easily be another 2% round trip. You'll be leaking money, unless you have a very high success rate. You're a new trader. I wouldn't expect you to have a high success rate.

My best recommendation is to buy long term. Either an index fund, or find a good, solid company you're happy holding for some time. The longer you hold, the less your brokerage fees matter due to capital growth.

Come back to trading when you've got more capital.

I originally thought that this would be a better option but since I already own property I don't think long-term investing can be all that useful if paying down my mortgage can be more beneficial.

Is there a way to trade on US markets with little to no brokerage/commision fees? Could this be an option to allow me to swing trade or is swing trading with a small capital just not worth it? I've seen people on youtube starting trading with as little as $500, but obviously if it's just not efficient as an inexperienced trader then so be it. What would be a suitable capital to start swing trading with? $5000, 10,000, 100,000?

Also, I've noticed that brokerage fees might be able to be claimed at tax time in Australia when trading. Does anyone know how this would work?

Thanks, Kyle

 

[Sinko]

Also could using CFD's allow me to purchase more shares with a smaller capital (and increase my buying power) to reduce the percentage of my trades brokerage/commission fees?

 

[cynic]

Also could using CFD's allow me to purchase more shares with a smaller capital (and increase my buying power) to reduce the percentage of my trades brokerage/commission fees?

More likely to increase your overall costs due to the size of the spreads. Also, if positions are held overnight, your account may be debited with additional charges (applied in lieu of interest).

 

[peter2]

Yes, paying down your real-estate mortgage is much more beneficial.

All US brokers charge very little for brokerage and offer 2:1 margin for swing trades (4:1 for day trades). Those youtubers are usually experienced and get special brokerage conditions for a short time to attract new customers.

Yes cfds would be the way to go, but you'd have to be very careful with your position sizes and open risk. You can lose more than your account balance. CFDs spreads, commissions and fees are costs of doing business and erode small accounts quite quickly.

I'd suggest starting with 3-10K while you're learning and gaining experience. Expect to lose a significant amount until you "get it". Most people don't last long enough to "get it" because they start with a too small account size.

Even if you get lucky early you're only going to make a few K. Is this worth your time?

 

[Sinko]

Yes, paying down your real-estate mortgage is much more beneficial.

All US brokers charge very little for brokerage and offer 2:1 margin for swing trades (4:1 for day trades). Those youtubers are usually experienced and get special brokerage conditions for a short time to attract new customers.

Yes cfds would be the way to go, but you'd have to be very careful with your position sizes and open risk. You can lose more than your account balance. CFDs spreads, commissions and fees are costs of doing business and erode small accounts quite quickly.

I'd suggest starting with 3-10K while you're learning and gaining experience. Expect to lose a significant amount until you "get it". Most people don't last long enough to "get it" because they start with a too small account size.

Even if you get lucky early you're only going to make a few K. Is this worth your time?

That opens my eyes and makes a lot of sense. Thanks for clearing that up. Maybe I should do more research into long term investing as a way to diversify my investments/assets. I will have to do some more research into dividend investments.
Thanks a lot
Kyle

 

[wfdTamar]

Just so you know what they're like - I use SelfWealth - works fine and they can save you heaps on fees, particularly if you do big money trades. Apparently the biggest trader on there is doing $12 million trades, so saving a fortune in fees.