Compare Cost: Self Directed Trading Futures Trading or Automated Trading Strategies?

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At some point every traders asks himself whether he should keep on trading by himself, attempting to improve his own methodology or perhaps consider whether he should  outsource a service to enhance his/her return.

Although the trader can use a number of services from email trade recommendations, real time indicators and/or a combination of a few, we would like to specifically compare the difference between automated futures trading strategies versus self directed trading.

First, if you are a winner in trading, and you are able to win consistently over long periods of time, there is no reason for you to seek another trading method. Maybe you can change platforms, maybe “fight” for cheaper commissions, but it’s not worth experimenting with other methodologies. Naturally, if you have additional risk capital, you can try and diversify, but end it on that.

• Automated trading strategies typically do not change the number of lots when traded. This is a very good thing when it comes to trading, as most self directed traders change the number of lots according to their success and failure.  Hence, increasing their risk substantially when they do well, yet trade less during drawdowns, when it’s a natural course of things.  This affects performance substantially.
• The cost of commissions could be substantial less because of two factors: as mentioned above, the number of lots increases and decreases constantly which adds a substantial cost of transaction.  Although the commissions on self directed could substantially less that automated trading services, from our observation automated trading still reduced the cost of transactions. Naturally, you should be checking the frequency of any system you are presented with.
• Slippage. Although this is the “cost” that most traders accept with trading, it’s substantially more prevalent in self directed trading.  Because of the reason mentioned above, frequent trading and large lots, the cost of slippage is enormous.  Just to keep you in perspective, the slippage could be substantially more than any commissions.

These are some of the facts considering when it comes to comparing the two services.  There are no ways to guarantee success, but there are substantial ways to decrease risk and transaction cost. Consider Automated trading strategies if you lack the time, disciple or both when it comes to yourself-directed accounts.