Core Position Trading Buy Low Sell High Stock Trading ETF Trading | Stock and ETF Trade Commission Costs Handling with AIM

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 $8.00.  [2010-04-10]

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 Quantity (the recommended method)
Method 2:  Adjusting the Price (NOT recommended)

Both methods of adjusting the AIM algorithm to accomodate the effects of commissions on the amount of stocks or ETFs to buy or sell at differnent prices are discussed below.

Method 1:  "Adjusting the Quantity", the recommended method, is shown for your use.
Method 2:  "Adjusting the Price", NOT recommended, is shown for reference only.

The AIM Buy-Sell Calculator Program incorporates the recommended commission handling method for the convenience of serious AIM users.

Adjusting the quantity IS the RECOMMENDED Method.

SELL (Method 1)

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

Then calculate the higher quantity to SELL at the given trade price 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

You have to sell MORE at a given Trade Price when you pay a commission and the higher the commission is.  When you subtract the commission from the proceeds, the Net then equals the Market Order.  That is, you need to generate $160.00 from the stock sale in this example to net $150.00.

BUY (Method 1)

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

Then calculate the smaller quantity to BUY at the given trade price to get a dollar amount such that when the commission is added, it results in an amount equal to the MARKET ORDER.

You have to buy LESS at a given Trade Price when you pay a commission and the higher the commission is.  When you add the commission to your purchase, the Net then equals the Market Order.  That is, you need to purchase $90.00 of stock in this example for a net cost of $100.00.

Adjusting the price is NOT the Recommended Method;
it is shown for reference only to illustrate the concepts.

Sell (Method 2)

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 2)

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.

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 1,  "Adjusting the Quantity",  is the preferred method of incorporating the effect of commissions into AIM BUYs and SELLs.

The AIM Buy-Sell Transaction Calculator Program enables you to calculate the proper number of shares to buy or sell, depending on the trade price and commission.  Commission calculating Method 1, "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.

Tags:   Automatic Investment Management (AIM),  buy low sell high,  commission costs,  commissions,  Core Position Trading (CPT),  ETF commissions,  Robert Lichello,  stock trading commissions, 

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AIM Stock & ETF Trading Transaction Calculator

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AIM e-gold Trading Transaction Calculator

Because of actions by the increasingly out-of-control fascist U.S. Government, the AIM e-gold transaction software is no longer usable.  Regardless, you may be interested in some of the information about gold, money, and government fiat currency debasement that robs you of capital and purchasing power on those pages linked to from this section, especially in the User Document.

AIM e-gold Trading Transaction Calculator Description
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