AIM  FIXED  COMMISSION  HANDLING

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.)

       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.

BUY (Method 1)

       Calculate the quantity to BUY at a given trade price.   (NOT accounting for commission.)

       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.

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.