Cost Thresholds - Speed Limit Rule

Speed Limit Rule

Maximum Acceptable Cost = Expected SR / 3

Obiettivo: Mantenere almeno 2/3 del pre-cost SR dopo costi.

Strategy con SR 0.30: - Max acceptable cost = 0.10 SR units - Turnover = 5× per year - Rolls = 4× per year

Max cost per trade = 0.10 / (5 + 4×2)
                   = 0.10 / 13
                   = 0.0077 SR units

Azione: Evita strumenti con TC_risk > 0.0077.

Max cost = 0.25 / 3 = 0.083 SR units annual

Con: - Turnover ~ 5-6× - Rolls = 4×

Max per trade ≈ 0.006 SR units

Se total cost = 0.10 SR units:

Pre-cost SR = 0.50 → Post-cost SR = 0.40

Hai mantenuto 80% del pre-cost SR (good!).

Rule of thumb: - 50%: Transaction costs - 30%: Rolling costs - 20%: Holding costs

Ma varia by instrument type.

Green (< 1/3 SR): - Acceptable costs - Trade normally

Yellow (1/3 to 1/2 SR): - High costs - Consider reducing turnover - Or avoid instrument

Red (> 1/2 SR): - Excessive costs - DO NOT TRADE - Find alternative instrument

Strumenti con low minimum capital spesso hanno high costs:

Trade-off: - Small capital → forced to expensive instruments - Large capital → access cheap instruments

Esempio: - 2-year bonds: Min capital $500, Cost 0.024 SR (expensive!) - S&P 500 micro: Min capital $9,000, Cost 0.0005 SR (cheap!)

Se costi aumentano (spread widening):

New Max Acceptable Cost = Unchanged
→ Reduce turnover to compensate

Esempio: - Normal spread: 2 pips, OK con turnover 10× - Crisis spread: 10 pips → reduce turnover to 2×