Author Topic: Comissions, short selling, general costs  (Read 3368 times)

Javier Perez

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Comissions, short selling, general costs
« on: February 18, 2016, 06:08:31 am »
Hello, first of all congratulations you are running a very interesting project!. I would like to know some details about pairs trading costs on ETFs:

-So, short selling implies paying comission/interests for borrowing the stocks right?. How do you calculate this? 

-I have seen that each ETF has an expense ratio. Does it affect to the strategy?

Overall can you explain all the costs of pairs trading maybe with an example I think it could be very helpful for newbies as me  :). Thanks!






admin

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Re: Comissions, short selling, general costs
« Reply #1 on: February 22, 2016, 12:55:04 pm »
Dear Javier,

thanks for your compliments! Now, to your questions:
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So, short selling implies paying comission/interests for borrowing the stocks right?. How do you calculate this? 
Yes, it does. At this moment, you have to check with Interactive Brokers via TWS or via their website (like in this video: https://www.youtube.com/watch?v=0Ulkeh6jbgU).

We plan to indicate number of shares and fee rates directly in PTL Trader.
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I have seen that each ETF has an expense ratio. Does it affect to the strategy?
It does of course, it is good if you check what are current costs of your ETF position. You could use http://www.etf.com/ website for instance.

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Overall can you explain all the costs of pairs trading maybe with an example I think it could be very helpful for newbies as me

Short interest rates and expense ratio is charged to all short ETF positions you have. Fortunately, if you trade with Interactive Brokers and avoid low-liquidity and hard-to-borrow ETFs, these costs will represent only small fraction of your total costs, which are your regular commissions you pay for any trade with stocks/ETFs anyway.

For instance, QQQ has expense ratio of 0.2% (http://www.etf.com/QQQ). See the attached screenshot to see current short fee rates, which fluctuates between 0.5% and 0.9%.
So if you held a short position of QQQ for the whole year, you paid something like 0.9% in total, which is very acceptable I think.

Just avoid trading hard-to-borrow stocks/ETFs and you don't need to pay too much attention to this.