If you have a mechanical trading system that lists 20 stocks on average and traded stocks once per month, you have a couple options for online stock broker commissions:
Traditional Broker
(20 stocks sold + 20 stocks bought) * $10.00 per trade * 12 months = $4,800
FolioInvesting.com
Unlimited trading for one flat annual fee = $300
Picking up where I left off with the online stock broker, FolioInvesting.com, from my last post. If you are already involved with mechanical investing and looking better stock brokerage commissions to implement your mechanical strategy, clearly FolioInvesting is probably the most cost-effective approach.
Let’s start with the basics of FolioInvesting. They have what they call a “folio” which is basically short for the term “portfolio”. You can build a folio with an unlimited number of stocks, exchange traded funds (ETFs) and/or mutual funds. Essentially you can build your own personal mutual fund. I will focus my discussions on investing in stocks using folios. At FolioInvesting, you can build your own folio made up of stocks you select (hopefully using a mechanical strategy!) or you can model your folio after one of their Ready-to-Go Folios. They have made it really easy to create a stock portfolio using their Ready-to-Go Folios and it is also very easy to update/exchange stocks to synchronize your folio to match theirs.
When it comes to mechanical investing, FolioInvesting is the best broker I have ever found. You can create your stock folio using very basic steps they have on their site. Then, assuming after one month you need to update and exchange your stocks for ones that currently pass your mechanical screening criteria, well they have made that pretty easy too! You can create a watch portfolio of the stocks that currently pass your mechanical screen and then just tell FolioInvesting to update & exchange your main stock trading folio to match the watch portfolio you created. Easy squeezy!
Are you ready for another real benefit of FolioInvesting? Fractional shares! Yes, they allow you to buy fractions of shares up to 5 decimal places. Fractional shares may not sound all that interesting, but when you want to trade 20 or more stocks every month and you don’t have $200,000 in your investing account to offset the $10 broker commissions, fractional shares can make a big difference. (Yes, I know there are brokers out there that offer commissions less than $10, but the $10 is sort of an average and nice round number to use for comparison.)
In my next post, let’s talk about fractional shares and how a broker like FolioInvesting can help you with them.
Happy Trading,
Bret
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