Small fees, counted a thousand times

Commissions are eating your profits when total fees are a large slice of what you made before fees. The rate per contract matters less than that share.

Nobody feels a commission. It shows up as a few dollars on a confirmation you never open. The trade itself is what you remember, so the cost never reaches the review.

Options make it worse in a quiet way. Commissions are usually charged per contract, on the way in and on the way out. A trader who takes many small trades pays that toll many times for very little movement per trade.

The fix starts with one number. Add up a month of fees, add up the month's P&L before those fees, and divide. That share tells you whether costs are a rounding error or the main thing your trading pays for.

The first cost is the broker's commission. On options it's usually a fixed amount per contract per side, and it's listed on each confirmation.

The second is a set of small regulatory and exchange fees. Some apply only when you sell. They're tiny per trade and easy to ignore, which is why they belong in the sum.

The third is the bid-ask spread, and it never appears as a fee. If you buy at the ask and sell at the bid, you pay the full width. It's already inside your fill prices, so your statement's P&L has absorbed it.

Statements show the first two clearly. The spread you estimate from how you fill. Market orders on a wide option pay it in full. Limit orders near the middle of the spread pay less, at the cost of sometimes missing the fill.

Use simple numbers so the arithmetic is easy to follow. Say commission is 50 cents per contract per side. You trade 4 contracts, 10 round trips a day. Each round trip costs 4 times 2 times 50 cents, which is 4 dollars.

That's 40 dollars a day, or 840 dollars over 21 trading days before regulatory fees. Now say the month made 1,500 dollars before fees. 840 divided by 1,500 is 56 percent. More than half the gross went to commissions.

The spread sits on top of that. Say the option is quoted 1.20 bid and 1.25 ask, so the 5-cent width costs 5 dollars per 100-share contract. Crossing it on 4 contracts costs 20 dollars per round trip. That's five times the commission, and no statement names it.

Pull one full month from your broker. Find the commissions and fees, which are usually separate columns or lines per trade, and add them up.

Then take the month's realised P&L. If the statement shows it after fees, add the fees back to get gross. Fee drag is total fees divided by gross P&L.

If the month lost money before fees, the share is meaningless. Compare fees with your average losing trade instead, and you'll see how much of each loss was cost.

Then set per-trade cost against expectancy before fees, the average dollars per trade. At 4 dollars a round trip against 6 dollars of expectancy, two thirds of your edge pays fees. More trades won't help that ratio. Bigger moves per trade will.

Start with your shortest trades. When a trade aims for a few cents per contract, the fixed fee is a big slice of it. Sort your results by hold time and check whether the quickest bucket earns its costs.

Next, look at results per symbol. Thinly traded names often carry wide spreads. If a ticker loses money overall, the spread may be part of why.

Then look at how you fill. Strikes with heavy volume tend to quote tighter spreads. On a wide quote, a limit order near the middle beats a market order. You'll accept some missed fills.

Raising size won't fix fee drag on options, because commission scales with contracts. Only bigger moves per trade or fewer trades change the share.

Do this once a month, on the same day, and keep each result in a running list. The trend matters more than any single month. A rising share means your trades are getting smaller relative to their costs.