The cost of trading may be higher than its ever been even though trading is free. In a bygone era, the cost of trading was mostly apparent. A commission was charged on every transaction.
Commissions acted like a speed bump or a governor on a car’s engine. It was tangible. It was obvious. It forced investors to slow down, realize a cost was involved, that had to be overcome to make a profit. It also didn’t take a genius to know how the broker made money.
Today that speed bump is gone.
There’s a second cost of trading that’s less obvious and easily overlooked. It’s self-imposed. It’s driven by human nature. It comes in the form of errors and mistakes. And, put simply, that behavior can be manipulated and extremely costly.
Warren Buffett once warned about the role brokers played in the markets (in relation to derivative securities), which seems especially relevant today. Continue Reading…