AIM FIXED COMMISSION HANDLING
There are two methods of handling commissions with AIM.
"Method 1: Adjusting the Price", and
"Method 2: Adjusting the Quantity".
"Method 1: Adjusting the Price", is shown here for illustration.
However, it is NOT the recommended method.
"Method 2: Adjusting the Quantity", which IS the
recommended method,
is NOT shown here.
This is an ABRIDGED version of the Commission Handling page.
You may obtain the complete page by purchasing
the AIM Buy/Sell Calculator program,
link below.
In that case the complete version of this page will be
included as part of your purchase.
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Introduction
Robert Lichello wrote a great book on how to actually "Buy Low and
Sell High" in the Stock Market, called
How to Make $1,000,000 in the Stock Market Automatically!
His book was first published in 1977 and is now in its
Fourth Revised Edition (December 2001).
It's available on Amazon.com for about $7.00.
[2002-05-29]
Lichello did not consider the effect of commissions on the amounts to
buy or sell at various prices.
Where the commissions amount to a small percentage (say, less than 1% or 2%)
of the transaction, this is maybe OK.
If you are making small transactions, the commissions amount to a much
larger percentage of a transaction.
In those cases, I believe that the commissions definitely should be taken
into account.
You may as well take them into account for all your transactions,
large or small.
At present, most on-line brokers offer essentially a fixed dollar amount
commission on BUYs and SELLs, rather than a percentage.
For large amounts, the commission structure can vary, but most of
us can consider the commissions as "fixed commissions".
There are two possible ways to adjust possible transactions to
incorporate the effect of fixed commissions.
Method 1: Adjusting the Price
Method 2: Adjusting the Quantity
Method 2: Adjusting the Quantity,
is the recommended method.
The analysis and the conclusion follow.
A program (AIM Buy/Sell Calculator)
is available that incorporates the recommended commission
handling method.
Method 1: Adjusting the Price
Adjusting the price is NOT the Recommended Method;
it is shown for reference only
SELL (Method 1)
Calculate the quantity to SELL at a given trade price.
(NOT accounting for commission.)
| Trade Price: |
$3.00 |
| Market Order: |
$150.00 |
| Qty to Sell: |
Market Order / Trade Price
$150.00 / $3.00 = 50 shares |
Then calculate the (higher) price for the same quantity
so as to generate the extra proceeds
equivalent to the Sell Commission. This is so that the NET after
subtracting the
commission results in a dollar amount equal to the MARKET ORDER.
| Qty to Sell: |
50 shares |
| Commission: |
$10.00 |
| Market Order: |
$150.00 |
| Price: |
(Market Order + Commission) / Qty to Sell
($150.00 + $10.00) / 50 = $3.20 |
| Summary: |
Selling 50 at $3.20 --> $160.00
$160.00 less $10.00 commission) --> $150.00 (Market Order) |
BUY (Method 1)
Calculate the quantity to BUY at a given trade price.
(NOT accounting for commission.)
| Trade Price: |
$2.00 |
| Market Order: |
$100.00 |
| Qty to Buy: |
Market Order / Price
$100.00 / $2.00 = 50 shares |
Then calculate the (lower) price for the same quantity
to get a dollar amount such that
when the commission is added, it results in an amount equal to the
MARKET ORDER.
| Qty to Buy: |
50 shares |
| Commission: |
$10.00 |
| Market Order: |
$100.00 |
| Price: |
(Market Order - Commission) / Qty to Buy
($100.00 - $10.00) / 50 = $1.80 |
| Summary: |
Buying 50 at $1.80 --> $90.00
$90.00 plus $10.00 commission) --> $100.00 (Market Order) |
Method 2: Adjusting the Quantity
Adjusting the quantity IS the RECOMMENDED Method;
but it is NOT included here.
See the top of the page for details.
Comments and Conclusion
With AIM, the Market Order is a number of dollars, based on a specified
Trade Price.
The quantity to Buy or Sell derives from that.
The Market Order is the number of dollars that AIM "tells" you to spend
or receive, based on that specified Trade Price, which is the price the
Value is calculated from.
Therefore, I conclude that the Quantity, not the Trade Price, should be
adjusted for the amount of the Commission so that the NET spent or
received, buying or selling at the specified Trade Price, is
equal to the Market Order.
To summarize, I conclude that Method 2 above,
"Adjusting the Quantity",
is the preferred method of incorporating the effect of commissions into
AIM BUYs and SELLs.
Commission Calculations are Incorporated in the
AIM Buy/Sell Calculator Program
An AIM Buy/Sell Calculator Progam is available.
It enables you to calculate the proper number of shares to buy or sell,
depending on the trade price and commission.
Commission calculating Method 2, "Adjusting the Quantity", is incorporated
in the AIM Buy/Sell Calculator Progam.
Commissions on both the BUY side and the SELL side can be
set independently for any reasonable value, including zero.
If you set the commissions to zero, your buy and sell calculations will
result in numbers similar to those of the "classic" AIM examples in
Lichello's book.
The commissions and other parameters can be saved as modifiable defaults
for future use by the program.
AIM Buy/Sell Calculator Program Information
For more information, and to order,
see the AIM Buy/Sell Calculator Program page at
http://www.bean-d.com/cpt/aim-stock-etf-transaction-calculator.htm
CONSULTING, PROGRAMMING, AND SPREADSHEET
SETUP SERVICES AVAILABLE
If you would like assistance (consulting) with your Core Position Trading
or AIM questions, refinements, and trading
contact me (David A. Bean)
NOTICE!
Since the 1st Amendment to the U.S. Constitution is null and void,
except as permitted by law, the following disclaimer is provided:
This web page or others written by, hosted by, or linked to by
David A. Bean are not to be construed as providing investment advice.
This material is provided for informational, amusement, and educational
purposes only.
Consult a duly (dully) trained, authorized, credentialed, licensed, and
brainwashed establishment professional before engaging in any financial
transactions relying on this or any other information.
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