Hey Everyone,

I'd like to discuss the mathematical formula that I use to determine the minimum position size I take to make sure that broker fees are not a big problem for me.

 

Here are the parameters:

B = Total broker fee (both enter and exit)

P = Price of stock at which you want to enter

C = Change amount you want to gain to neutralize fees

S = Minimum number of shares to buy/short

 

Here is the formula:

B/(P * C) = S

 

Tim Grittani recommends a 1.5% change at the minimum to neutralize broker fees. Let's take that, along with an example of $20 broker fees (Etrade) and an $0.80 priced stock.

 

Thus, we have this...

20/(.80 * .015) = 1666.66 shares

 

So we'd want at least 1667 shares so that a 1.5% move has us break even on fees. I would probably round it up to 1700, in this case.

 

I hope this was helpful for you!

-Andrey