What Is Overtrading

The fare for one trade and twenty

Overtrading is placing more trades than the reasons for them warrant, and what it costs is the fare every trade pays. On the euro against the dollar each trade pays the spread, 0.6 pip here, 6 dollars at one lot, and a commission, 7 dollars a lot for the round trip in example figures: 13 dollars a trade at one lot, 1.30 at 0.10. Twenty trades in a day is 260 dollars at one lot, 2.6 per cent of a 10,000-dollar account, and twenty such days is 5,200, more than half of it. The fare is paid whether the trade wins or loses, on the way in and on the way out, and it is paid before anything else.

A taxi meter

Picture a taxi meter. It runs whether or not the cab is going anywhere, and it does not care why the passenger got in; every journey is a fare, and a journey to nowhere costs what one to somewhere costs. The spread and the commission are that meter. Every trade pays them, in and out, and a trade placed for no reason pays exactly what a good one pays. Twenty trades in a day put 260 dollars on the meter at one lot, and the cab may not have left the rank. Overtrading is running the meter without a destination, and the meter never asks whether there was one.

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