Impact of trading costs

28 Jun 2021

What most traders don’t realize is that they pay a good chunk of their capital as costs. If you add impact costs, the minimum return an active trader should generate to break even yearly on their portfolio is usually well above 20%. Yep, that high and that tough.

Costs include Statutory costs like STT, Stamp duty, GST Impact costs or slippages (while this doesn’t even seem like a cost, it adds up quickly. Especially when buying options, will have a post on this soon). Trading costs like brokerage and exchange charges.

This breakeven % is a high hurdle as most traders take largest possible positions every trade with their capital without considering costs The way to reduce the impact of costs & increasing the odds of winning is by reducing the trading size (% of capital deployed per trade).

At Zerodha the statutory costs incurred are more than trading costs ~20% of active traders incur ~80% of total costs. This must be similar to most brokerage firms Trivia: STT + Stamp paid by our customers is more than the Income tax paid by the 25th largest company in India.

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