Is a $5000 Questrade TFSA trading account cost effective? Part 4
Alright, so I’m back from the dead. Let’s finish this cost-benefit analysis before the weekend. Here are back links for Part 1, Part 2, Part 3 in case you missed them.
The table below shows my expected return as derived through part 2 and part 3 of this series. As you can see, I’m only expected to break-even by risking 1% of my $5000 TFSA trading account. Trading just for the sake of break-even isn’t exactly an enviable goal. Based on my statistics, I typically say an expected return of 0.10% per trade is acceptable. Looking at the table, that would require that I risk 1.5% per trade.
TFSA Trading Cost-Benefit for Reward/Risk = 2.0 and 40% win rate
So I’ll have to risk 1.5% just to scrape in 0.10% of profit? The problem is obvious. Using a $5000 trading account with $5 commission, along with my historical trading performance simply do not justify the odds.
I started this series to study the cost effectiveness of a Questrade TFSA trading account. But the conclusion which I derived is much broader. Considering that even without being taxed, a $5000 TFSA trading account is insufficient for trading with a commission of $5 or higher. Thus, if this is a taxed, non-registered trading account, the cost would be even more. As such, not only is $5000 an insufficient capital for a Questrade TFSA trading account; $5000 is simply too little money to trade any trading account with $5 of commission per trade for me. Remember though, this cost-benefit analysis is based on my own statistics. You can input your own parameters into this spreadsheet to get your own set of results.
To be fair, I must clarify that the problem isn’t with Questrade. Even with their lowest trading commission in Canada (affiliate link), a $5 trading commission for an account of $5000 is simply too much for me.
Yes, there’s nothing to stop you from trading with a $5 commission for a $5000 account. Heck, many have claimed to be successful with less than $5000. However, that’s just not my style. I don’t gamble with my hard earned money. I only trade when the odds are in my favour. If the cost is un-proportionately high, it’s as if I’ve suffered a setback even before I begin fighting the battle. As such, I’m going to say “no thanks!” to a Questrade TFSA trading account for now.
My short term plan is to look for a guaranteed TFSA savings account until I can develop a trading system for Canadian stocks that would justify the cost-benefit.
Related posts:
- Is a $5000 Questrade TFSA trading account cost effective? Part 2
- Is a $5000 Questrade TFSA trading account cost effective? Part 3
- Is a $5000 Questrade TFSA trading account cost effective? – Part 1
- Not pay trading income taxes through a TFSA trading account
- Considering investment options for my first RRSP
This is an awesome article! I really like the commitment to logic. Really really great to see. I’m not too familiar with trading and what not, but am interested and this is exactly what I wanted to find.
Nice work.
Mr. Lister,
It’s good to hear that my obsession with spreadsheets is producing something useful!